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April 25, 2011 01:00 AM

Target-date inflows highest in over 3 years — Ibbotson

Robert Steyer
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    Target-date fund inflows totaled $16.57 billion in the first quarter, an amount surpassed only by the $17.3 billion in inflows during the fourth quarter of 2007, according to an Ibbotson Associates report Monday.

    Ibbotson is a unit of Morningstar.

    Morningstar has been tracking target-date fund flows since the second quarter of 1994, Jeremy Stempien, senior consultant for Ibbotson, said in an interview.

    There are several possible reasons for the high inflows, including the greater use of target-date funds as qualified default investment alternatives by defined contribution plans, Mr. Stempien said.

    He also said the inflows could be the result of “the increased confidence among workers regarding job security (that) may result in more participants increasing their savings rate,” as well as DC plans reinstating or raising their corporate matches.

    The average target-date fund returned 4% during the first quarter, compared with 5.9% for the S&P 500 stock index and the 0.4% return for the Barclays Capital U.S. Aggregate Bond index, the quarterly report said. The average return for the 12 months ended March 31 for target-date funds was 13.2%, vs. 15.7% for the S&P 500 and 5.1% for the bond index.

    Among 13 target-date asset classes, U.S. small-cap growth equity had the highest first-quarter return at 9.2%, followed by REITs with 7.5%, the report said.

    The high-yield bond target-date asset class returned 4.4% and TIPS returned 2.1%, while asset classes representing U.S. aggregate bonds, short-term bonds, and cash all returned less than 0.5%, the report said.

    For the 12 months ended March 31, U.S. small-cap growth returned 31%; commodities, 28.5%; and REITs, 25%.

    “High-yield bonds had an outstanding run over this time with an equity-like return of 14.7%, which was tops for the fixed-income asset classes,” the report said. TIPS produced a 7.9% return.

    The target-date fund analysis excludes collective investment trusts and customized target-date funds, he said. Ibbotson Associates now follows 369 target maturity funds with at least a one-year track record, representing 45 fund families.

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