Asset Allocation Funds Post 5% Q3 Gains

Returns for target-date and target-risk funds were around 5% for the third quarter, according to Morningstar, Inc.

The “Ibbotson Target Maturity Report” for third quarter 2013, covered the performance and asset flows for retail target-date fund families in the third quarter, and includes a spotlight on glide path changes since the recession’s start in 2008. The report found target-date funds returned 5.3% for the quarter, on par with the S&P 500, and 12.3% for the 12-month period ending in September, driven by the strong performance of equities in developed countries.

Other findings include:

– Estimated flows into target-date mutual funds were only $1.5 billion for the quarter, the lowest in more than a decade. The transition of some retirement plans from mutual funds to a collective investment trust (CIT) structure may have contributed to the muted flows.

– As of the end of the third quarter, total assets in target-date funds were an estimated $577 billion. While this was a 24% increase from a year ago, it’s below the $676 billion invested in target risk funds.

– Since 2008, fund families have, on average, responded by making their glide paths more conservative as they approach retirement. The industry also saw a divergence of glide paths over the last five years as some families became more conservative and new families entered the market with conservative offerings.

According to the “Ibbotson Target Risk Report” for third quarter:

– Target-risk funds gained 4.7% on average for the third quarter and 11.1% over the past 12 months.

– Flows into target-risk funds were healthy with more than $3.9 billion flowing into the category during the quarter. Moderate funds gathered the majority of the flows.

– Target-risk funds continued to see total assets climb to all-time highs. As of the end of the quarter, total assets in target-risk funds were near $676 billion, a 14% increase from a year ago.

The Ibbotson Target Maturity Report for third quarter can be found here.