Morningstar Research Shows Record Flows to Target-Date Funds as Low-Cost, Passive Series Dominate

CHICAGO, May 7, 2018 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced findings from the 10th annual Target-Date Fund Landscape Report. The 2018 research report evaluates nearly 60 target-date series, presenting the latest developments in the competitive landscape, and highlights noteworthy considerations for target-date investors in five areas: Price, Performance, Parent, People, and Process. A target-date fund is an all-in-one investment that systematically shifts the asset mix of stocks and bonds in its portfolio according to target retirement date. This year's study found that in 2017, record flows paired with positive returns lifted assets in target-date mutual funds above $1 trillion, in comparison to $158 billion a decade ago.

"Target-date funds had another big year in 2017 with an all-time high of $70 billion in estimated net flows. Even more remarkable than the funds' strong growth, though, was seeing the heightened demand for low-cost, passive target-date series," said Jeff Holt, Morningstar's director of multi-asset and alternative strategies team. "Approximately 95 percent of target-date funds' net flows went to series that invest predominantly in index funds; a sizable jump from roughly two thirds the previous year."

Key findings from Morningstar's annual target-date fund landscape report include:

• Assets in target-date mutual funds eclipsed $1 trillion in 2017 after seeing an all-time high of $70 billion in estimated net flows during the year. The funds have experienced more than $40 billion in net flows each year since 2008.
• In 2017, passive target-date series—ones that invest predominantly in index funds—attracted nearly 95 percent of the $70 billion in estimated net flows to target-date funds, likely driven by retirement plan sponsors' demand for low costs.
• Fees for target-date funds continued their multiyear downward trend in 2017. The average asset-weighted expense ratio fell to 0.66 percent at the end of 2017, a notable decrease from 0.91 percent from five years ago.
• When target-date providers have launched additional lower-cost series to meet demand, those series generally have been the most popular, but not all have produced better performance results than older, more-costly ones.
• Portfolios for different passive target-date series may diverge significantly, even more so than active series from a sub-asset-class glide path viewpoint. While active and passive series generally have similar average equity glide paths, the average sub-asset-class exposures reveal more diversified bond exposures in active series than passive ones.

"Target-date investors clearly stand to benefit from lower costs, but it is critical that those selecting target-date funds—retirement plan sponsors or investors—know what's behind the price tag. Looking at sub-asset class exposures reveals meaningful differences between target-date series, even between ones considered passive, and those differences affect performance results more than fees," said Holt.

Analysts determine an Analyst Rating for target-date series by evaluating five key pillars and assign the ratings on a five-tier scale of Gold, Silver, Bronze, Neutral, and Negative. The top three tiers are Morningstar Medalists and represent positive ratings. The Analyst Rating methodology for target-date series is available here.

The research report is available here and an article summarizing the findings is available here. Morningstar publishes a Morningstar Analyst Rating™ and reports for 20 of the most widely held target-date fund series, available on Morningstar.com^® through a Premium Membership. Morningstar's Analyst Ratings and in-depth reports for target-date series are available in Morningstar Direct^SM, the company's global investment analysis platform for institutional investors, and in Morningstar Office Cloud^SM, Morningstar^® Advisor Workstation^SM, and Morningstar^® Analyst Research Center^SM, the company's investment planning and research platforms for financial advisors.

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $201 billion in assets under advisement and management as of March 31, 2018. The company has operations in 27 countries.

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar's Manager Research Group's current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund's or the fund's underlying securities' creditworthiness. This press release is for informational purposes only; references to securities in this press release should not be considered an offer or solicitation to buy or sell the securities.

©2018 Morningstar, Inc. All rights reserved.

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SOURCE Morningstar, Inc.

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