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2Q20 Target Date Fund Flow

With the United States, and world, currently entrenched in pretty massive uncertainty around COVID-19, unemployment, finances, politics, etc., it’s not surprising the industry saw a pretty massive dip in Target Date Fund (TDF) flow for the 2nd quarter. In this piece, we’ll look at those trends as well as track some general quarterly flow data.

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By Clayton Fresk on July 22, 2020



With the United States, and world, currently entrenched in pretty massive uncertainty around COVID-19, unemployment, finances, politics, etc., it’s not surprising the industry saw a pretty massive dip in Target Date Fund (TDF) flow for the 2nd quarter.  In this piece, we’ll look at those trends as well as track some general quarterly flow data.

 

For the quarter, TDFs took in about $2.5BB.  This was much lower than the 1st quarter, but that is common as historically 1st quarters have seen outsized flows compared to the rest of the year.  But here is a chart comparing TDF flows for the past 10 2nd quarters:

 

Chart Source: Stadion

 

Taking the state of the world into account, this isn’t necessarily shocking. Participants may have had to stop or reduce retirement contributions while others may have had to take withdrawals from retirement accounts to support themselves financially.

 

This 2nd chart breaks down last year’s vs this year’s 2Q flow by vintage.

Chart Source: Stadion

 

What may be somewhat surprising is that the longer-dated vintages (2065-2050) saw increases in net flow as younger investors continued to contribute.  The biggest differences occurred in the 2040-2025 vintages.  Last year, there was sizable net flow activity in said vintages, whereas this year those vintages’ total flow was about flat.  The 2020 vintage also saw massive outflows, which is expected as these investors have reached retirement.  For issuers managing to retirement (vs through retirement), these 2020 funds either have or will shut down and merge into the respective income fund.  However, retired investors also cash out of retirement plans, and as such these TDFs are ‘force’ liquidated.

 

 

Looking at this year itself, here is a breakdown of flow by vehicle (mutual fund vs CIT):

Chart Source: Stadion

 

While CITs made up 40% of the Assets Under Management (AUM) at the end of the 1st quarter, they only took in 17% of the net flow.  This is even after accounting for a couple issuers that had relatively massive moves from mutual fund to Collective Investment Trust (CIT) structures:

  • AllianceBernstein shut down their mutual fund structure during the quarter and saw about $650MM switch over to the CIT structure.
  • Fidelity also had a large move of about $1.4BB net from the mutual fund structure to the CIT structure

 

An ongoing trend we’ve seen is the move from active to passive vehicles, which continued during the 2nd quarter:

 


Chart Source: Stadion

 

Leading the way again was Fidelity, who saw nearly $3BB move from active to passive vehicles.  As was the case last quarter as well, the active number could look worse if not for American Funds, who continues to garner assets, pulling in about $2.6BB this quarter (which was the 2nd most AUM taken in by an issuer, trailing only Vanguard at +$3.2BB).

 

 

As we move onto the 2nd half of the year, it will be interesting to see if things generally settle down a bit.  The equity markets have seemingly somewhat reset, and the high volatility they experienced settled down, as we saw a strong rally off the March lows.  The economy and political arena may be another story as the continued reactions to COVID-19 still seem to be wreaking havoc on the country as a whole.

 

 

 

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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.

2Q20Quarterly Wrap UpTarget Date FundTDF FlowsTDFs
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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.


Material has been derived from sources considered to be reliable, but the curacy 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. This is not a recommendation to buy or sell a particular security. The investment strategy or strategies discussed may not be suitable for all investors.

 

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Investors must make their own decisions based on their specific investment objectives and financial circumstances. Stadion Money Management, LLC (“Stadion”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Stadion’s investment advisory services can be found in its Form ADV Part 2, which is available upon request.

 

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