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4Q19 TDF Flows

The 4th Quarter of 2019 saw some interesting flow activity into TDFs. While there are many ways to slice and dice the information, we’ll take a look at some interesting highlights below.

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By Clayton Fresk on February 28, 2020



The 4th Quarter of 2019 saw some interesting flow activity into TDFs.  While there are many ways to slice and dice the information, we’ll take a look at some interesting highlights below.

 

(Note: at the time of this writing, there remained a couple providers who had not reported December AUM, where flow numbers are derived from.  As such, there could be minor revisions to the data once final numbers are reported.)

 

First off, TDFs overall took in $16.6BB in the 4th quarter, which was by far the lowest quarter of 2019 (figured in billions)

  • 1st Quarter: $59.3
  • 2nd Quarter: $35.7
  • 3rd Quarter: $28.9
  • 4th Quarter: $16.6

Additionally, December was the only month in 2019 that saw negative TDF flows ($1.4BB).  It looks like a portion of this negative flow can be attributed to the ‘2020’ effect.  As these 2020 funds hit their target date at the end of the year, some of these funds were likely closed or merged into their respective Income fund.  As such, there was an outsized negative flow from that particular vintage.

Chart Source: Stadion

 

Whereas negative flows from vintages past retirement date are not rare as participants often move these assets into other vehicles, it was interesting to see the lack of inflows into the 2040-2025 vintages.

 

Another view of flows is the trend we’ve seen of assets flowing out of active into passive or blended strategies.  Again, the 4th quarter seemed to buck that trend:

  • Passive: +$15.1BB
  • Active: +$4.2BB
  • Blend: -$2.7BB

Previously we had seen stronger inflows into blended products, as these products are often cheaper than a purely active strategy but still allows for potential outperformance over a purely passive strategy.  We’ll dig a bit deeper into these numbers shortly.

 

We also saw a bit lower than normal flow activity into CITs vs Funds on the quarter:

  • CIT: $2.5BB (15% of flow)
  • Funds: $14.1BB (85% of flow)

We noted in a previous post that CIT assets were starting to grow and are nearing 40% of the overall TDF market.  So, it bucked the trend a bit to see only 15% of flows go into CITs for the quarter.

 

Digging into the data a bit more, there appears to be a couple situations with larger issuers that are causing some of the dispersion in figures.

  • SSgA – It appears SSgA had a nearly $3.5BB outflow from its CIT series, which had a drastic effect on the CIT numbers referenced above
  • Fidelity– It appears that Fidelity had a $5.7BB outflow from its Blended CIT series, which had a large effect on both the CIT and Blend numbers above. However, they also had a corresponding $5.8BB inflow into their Passive Fund product.  So this may be a case of plans switching to a lower cost passive product, although it would still be a tad peculiar since Fidelity also offers a passive CIT product as well (which saw about $1.8BB of inflows, although this could have been funded from a $1.5BB outflow from the Active Fund product).
  • American FundsWe saw American Funds (Capital Group) first foray into CITs, and things started off nicely with a $1.3BB funding of the product (to go along with a $5.7BB inflow into their ever-popular fund series)
  • In regards to switching from one product or style to another:
    • We saw 6 issuers have negative flows into the fund structure and offset positive flows into the CIT structure. However, only two of these issuers saw total net positive flow across structures (T. Rowe Price and Wells Fargo) )
    • The main issuers who continue to see flows moving from Active to Passive are the aforementioned Fidelity and JPMorgan who saw slightly over $2.1BB flow from their active products into their blended products.

So, where does that lead us into 2020?  We think it will be important to watch the longer-dated trends we saw before what seems to be a 4Q19 anomaly.  These include:

  • Movement from mutual fund to CIT structure – overall flows/AUM are still trending towards CITs, and more issuers are starting to issue and/or grow their CIT offerings
  • Movement from Active to Passive or Blended products – continued focus on costs seem to be driving more plans to move away from costlier active products, especially as active funds continue to try and outperform their passive counterparts

 

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Author: Clayton Fresk

Clayton 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.

AnalysisGlide PathQuarterly Wrap UpTarget Date FundsTDFs
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Written By:

Clayton Fresk

Clayton 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.


There is no guarantee of the future performance of any Stadion account. Material has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Results based on available universe of Target Date Fund Series, which includes registered mutual funds, and non-registered collective investment funds and insurance accounts. Collective investment funds and insurance accounts are only available for investment to qualified retirement plan assets such as 401(k) plans.

 

The commentary, analysis and opinions expressed are those of Stadion’s Investment Team. The commentary, analysis and opinions referenced are as of the date of publication and are subject to change without notice. This material is for informational purposes only and should not be considered investment advice.

 

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