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November 07, 2013 at 09:07 AM
Target-date funds returned 5.3% for the quarter, slightly better than the S&P 500’s 5.2%, according to the latest report issued by Morningstar-owned Ibbotson Associates on Tuesday. Plus, the funds are up “a respectable 12.3% for the 12-month period ending in September, driven by the strong performance of equities in developed countries,” Ibbotson analysts say.
Still, estimated flows into target-date mutual funds were only $1.5 billion for the quarter. This is the lowest in more than a decade, explain Jeremy Stempien and Cindy Galiano, who wrote the target-date report. “ The transition of some retirement plans from mutual funds to a collective investment trust (CIT) structure may have contributed to the muted flows,” the noted.
In the past 10 years, quarterly inflows into target-date funds have averaged $10 billion. This figure was about $13 billion per quarter over the past three years, the research group says.
As of Sept. 30, assets in target maturity funds were about $577 billion, a 24% increase from a year ago.
As for their Q3 performance, target-date funds outperformed both U.S. large-cap stocks and bonds, which rose 5.2% and 0.6%, respectively, Ibbotson says. In the prior quarter, target-date funds didn’t keep up with S&P 500 and declined 0.6% on average.
“Non-U.S. developed equities and small-cap equities helped push target maturity fund performance higher, while funds with greater REIT exposure tended to underperform this past quarter,” the authors explained. Funds that had exposure to commodities, TIPS, emerging markets and REITs lost ground due given the poor performance of those asset classes.
Of the 420 target-date funds tracked by Ibbotson, 187, or 45%, outperformed their respective Morningstar index.
