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Most TDFs Are Actively Managed.

Byline: Lee Barney

By far, the most common type of investment class in defined contribution (DC) plans is target-date funds (TDFs), according to the 2018 PLANSPONSOR Defined Contribution Survey. Among plans of all sizes, 77.0% offer TDFs.

These are followed by balanced funds (70.0%), money market funds (59.8%), stable value funds (57.5%), target-risk funds (41.7%), professionally managed accounts (34.0%), real estate/real estate investment trusts (REITs) (27.8%), socially responsible funds (11.8%), employer risk funds (6.5%) and alternative investments (5.1%).

Because target-date funds are so incredibly important to a retirement plan advisory practice serving defined contribution plans, and because the debate between actively managed and passively managed funds continues to heat up as lawsuits centered around fees abound, we decided to take a look at flows into passively managed vs. actively managed TDFs.

For the trailing 12 months through this past November 30, actively managed TDFs had $49 billion in inflows, and passively managed TDFs had $11 billion, according to Strategic Insight Simfund data. Assets in individual actively managed TDFs far surpassed those in passively managed TDFs. For instance, the No. 1 actively managed TDF, the Vanguard Target Retirement 2025 fund, had $40 billion in assets as of November 30, whereas the No. 1 passively managed TDF, the BlackRock LifePath Index 2030 fund, had $6 billion.

Yet, speakers at the 2018 Best of PSNC [PLANSPONSOR National Conference] said there is a place for both active and passive management in defined contribution plans.

For example, Jason Brafman, director at John Hancock Investments, said that active management might be a better way to go with an emerging market fund.

Top 10 Actively Managed Target-Date Funds, Total Assets

Top 10 Passively Managed Target-Date Funds, Total Assets

Flows Into Passively and Actively Managed Target-Date Funds, Trailing 12 Months Through November 30, 2018

All data as of November 30, 2018

Source: Strategic Insight Simfund

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Date:Feb 1, 2019
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