In total, these funds account for the majority of assets managed (87.7%). Twenty-eight target-date providers offer 35 series using this approach, according to Callan’s latest survey of target-date fund managers. The universe of “through” managed funds is divided into fully active management (31.4%), passive management (25.7%) and those that combine both types of management (42.8%).
Target-date funds (TDFs) managed “to” retirement accounted for 12.3% of total target date assets at year-end. The universe of “to” managed funds is split almost equally between active (47.6%) and an active/passive blend (42.8%). There is only one purely passive target date fund in this universe.
The prevalence of inflation-sensitive assets increased relative to 2011. The survey found greater use of commodities, and U.S. and international REITs (real estate investment trusts) in particular. In 2011, more than half the target date managers surveyed changed their glidepath as a result of a recent review. The most common change reported was the addition/ increase in the inflation-protection component. In Callan’s 2012 survey, two-thirds of managers reported glidepath modifications, once again primarily around inflation-sensitive assets. This category includes TIPS (Treasury inflation-protected securities), commodities, REITs, diversified real assets, natural resources, infrastructure, and gold and precious metals.
The use of emerging markets—both equities and debt—has also risen. Emerging markets equity prevalence jumped, from 60% of providers, to 76.7% over the last year. The second most common glidepath change reported in 2012 involved improving the diversification within asset classes, especially international equities. Diversification efforts included adding/increasing emerging markets equity exposure (this ranked fourth in 2010 changes), as well as adding or increasing small/mid-cap international exposure.
One-fifth of funds report an allocation to alternatives—namely, absolute return strategies. The average allocation within the Callan Target Date Index was 1.3%, up from 1% in 2011.
One trend that appears to be underreported in the survey is a reduction in the overall equity exposure of TDFs. In 2012 very few target-date fund managers reported changing their overall equity to fixed income exposure (7%), and those that did noted only marginal changes. However, a year-over-year quantitative analysis of the typical TDF’s equity glidepath reveals a material decline in equities and equity-like investments.