Now that we’ve entered the final quarter of 2019, let’s look back at the flows within the TDF industry. Overall for the quarter, the industry saw net inflows of $27.8 billion, or about a 1.3% increase over the end of 2Q19. Total AUM in TDFs hit nearly $2.2 trillion.
By Clayton Fresk on October 22, 2019
Now that we’ve entered the final quarter of 2019, let’s look back at the flows within the TDF industry.
Overall for the quarter, the industry saw net inflows of $27.8 billion, or about a 1.3% increase over the end of 2Q19. Total AUM in TDFs hit nearly $2.2 trillion. Even so, you may see some headlines pop up stating something along the lines of:
“Active Target Date Mutual Funds see $400 Million outflow in 3rd Quarter”
While true, we need to dig a bit to see what is happening. As fee compression has hit the industry hard, we’ve seen two general themes within flows:
- Movement from Actively Managed to Passively Managed or Blended vehicles
- Movement from a Mutual Fund Structure to a CIT structure
Both trends held true in 3Q19 as seen in the table below:
Though the Active Fund category lost $400 million, this was more than made up by inflows into both CITs (including Active) and Passive/Blend vehicles.
Additionally, these moves don’t necessarily involve money leaving an issuer, but it rather could just be switching vehicles/strategies. A couple of examples are:
- T.Rowe Price: Saw a ~$700mm outflow from its Active Fund suite but appears to be mostly switching as its Active CIT suite saw inflow of $1.87BB. *
- JP Morgan: Saw a $1.41BB outflow from its Active CIT suite, but again appears to be switching as its Blended CIT saw inflow of $2.32BB.*
With this trend, we’ve also seen a few of the major ‘holdout’ issuers, which previously only had mutual fund structures, now offering CIT versions as well.
- Capital Group (American Funds) issued its first CIT series in May 2019 after announcing mid-2018.
- Nuveen/TIAA just anounced it was issuing its first CIT series.
While there are a few smaller players who still offer only mutual fund TDF, the largest remains John Hancock, who at last check has not announced plans to offer CITs. Conversely, there are a handful of issuers who only offer CITs.
Additionally, we’ve only seen one issuer close their mutual fund series and offer CITs exclusively, but this occurred about three years ago. However, with the market trends moving towards CITs it could be something we see other issuers do as well.
Coming off the summer months where activity is usually more muted, we could see a pickup in similar switching trends (moving from Active to Passive, moving from Funds to CITs) as plans and advisors begin year end reviews.
Author: Clayton FreskClayton Fresk joined Stadion Money Management in 2009 and currently serves as Portfolio Manager of Stadion’s Retirement investment strategies, which comprises oversight of Stadion’s managed account, target-date, and risk-based strategies. He provides thought leadership for Stadion’s participant level, customized retirement solutions, in order to ensure that its glide path technology and asset allocation are able to support all intermediaries in the defined contribution ecosystem. Clayton holds the Chartered Financial Analyst designation and is a member of the CFA Institute and the CFA Society of Minnesota. He also received an MBA degree and a Bachelor's degree in Finance & Marketing from the University of Minnesota.
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