Target-Date Funds Top $800B

The close of the first half of 2016 saw a modest, 4.2% quarter-over-quarter increase for target-date funds (TDFs), bringing assets in the mutual fund products to $810.5 billion. Showing net inflows of $18.4 billion for the quarter and $37.4 billion year to date (YTD)—a 7.9% increase in assets—the funds continue to display a noteworthy level of popularity. This seems especially fitting as we celebrate the 10th anniversary of the Pension Protection Act (PPA), which made TDFs the investment of choice for qualified default investment alternatives (QDIAs) within automatic-enrollment­ plans.

Of the five largest TDF managers, American Funds led the way over the first half of this year with a net flow rate of 20.7% for the period.

J.P. Morgan and Vanguard saw the next greatest gains year to date, with net flow rates of 9.2% and 8.4%, respectively. Vanguard’s $19.0 billion of net flows through June easily eclipsed American Funds’ $7.2 billion; however, the latter’s significantly smaller asset base converted these flows into an impressive 24.9% increase in assets.

A combination of factors has contributed to the flows into American Funds’ Target Date Retirement series. With 52.3% of net new flows for 2016 going into the R6 (zero/zero) share class of the series, it is clear that the industry’s focus on fees and transparency is influencing purchasing decisions. This is a material increase over the 32.2% of flows into this class across the series last year.

As an actively managed series, the funds in this class operate with competitive net expenses ranging from 36 basis points (bps) to 47 bps. Additionally, the series has benefited from top decile performance across all vintages over the most recent one-, three- and five-year periods.