Research, analysis, and thoughts on retirement investments & the future of personalization
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.
We’ve talked a fair amount about Passive vs Active TDFs, which refers to the type of underlying vehicles the TDF utilizes. (Note: There’s also Blend TDF which use a mix of active as passive vehicles). While these passive TDFs each follow their own glidepath, the holdings themselves are not necessarily homogeneous. In the following we’ll compare the underlying exposures of the top passive TDFs.
As we’ve talked about in a couple previous posts, TDF issuers have the right to alter their glide path at any given time. Any given quarter may see numerous or few (if any) changes within the industry. Despite the tumultuous market in the 1st quarter, the industry saw minimal glide path changes.
As we all know by now, the first quarter was a tumultuous time in the market. Investors were spooked for the first time in a while, which can affect flows. Additionally, with annual retirement plan reviews occurring in late 2019 and early 2020—in advance of this surge in volatility—we believe it is possible that many plan sponsors may have switched to a new target date offering.
While investors had a pretty easy ride heading into 2020, they definitely experienced some bumpiness during the tumultuous 1st quarter. Even with this horrible first quarter taken into account, though, most target date investors have still experienced positive performance over a longer-term five-year view. However, looking back over the past years also illustrates some odd anomalies in performance.