Collective Trusts Expected to Top Mutual Funds as Primary Target-Date Vehicles in 2023

Most target-date providers saw losses in 2022, with gains coming mostly from CIT-based funds. 

Collective trusts are projected to top mutual funds as the primary target-date vehicles this year, according to the latest analysis from Sway Research.

The number of lower-cost collective investment trusts, known as CITs, in target-date funds has surged past those that are mutual-fund based, Sway found in a report released Monday. As CIT-based solutions have produced the most asset gains in non-custom TDF portfolios, providers are increasingly placing assets in collective trusts, according to the Newton, New Hampshire-based firm run by founder and principal Chris Brown.

“Few target-date providers were spared losses for the year, with most experiencing a double-digit drop in assets,” the Sway report ‘The State of the Target-Date Market: 2023” stated. “A majority of the series that managed to produce asset gains were CIT-based, as the utilization of lower-cost collective investment trusts in Target-Date construction continues to surge.”

Assets in non-custom TDF portfolios fell from $3.25 trillion at the end of 2021 to $2.83 trillion at the end of 2022, marking a 13% drop, according to Sway’s proprietary database of 130 TDF solutions, spread across more than 6,000 mutual fund share classes and CITs. Most series that produced asset gains were CIT-based.

Meanwhile, CITs in TDFs continue to surge, while assets in mutual fund-based TDFs are still in decline. Over the last five years, assets in CIT-based solutions grew an average of 15% annually compared to 6% for those based in mutual funds, according to Sway. For each new mutual fund series, there were seven new CIT target-date series launched in 2022. 

At Vanguard, according to Sway tracking, CIT TDFs topped mutual fund-driven funds by $534 billion to $522 billion for the first time since tracking began in 2016. More than half of T. Rowe Price and JPMorgan’s target-date assets are held in CITs. Almost a quarter of Fidelity’s TDF assets under management are now held in collective trusts.

Assets in mutual fund-based TDFs in 2022 fell below the level tracked in both 2021 and 2020. At the end of 2017, the mix of MF to CIT was 63% to 37%. As 2023 started, the split was 52% to 48%. Sway’s analysts expect that CITs will surpass mutual fund-based TDFs this year. Currently there are 79 CIT products on the market, compared to 51 mutual-fund products.