The Callan Target Date index returned 4.57% for the third quarter, bouncing back from a poor second quarter, and returned 17.28% for the year ended Sept. 30.
Across the more than 40 target-date fund series represented in the index, returns ranged from a high of 19.24% to a low of 14.77% for the year. Longer-dated funds had the best returns for the quarter, with the median 2050 fund returning 5.98% compared with a median return of 3.35% for all funds in the index.
The greatest variation in one-year returns was 2015 funds where the median was 15.89%, but the spread between the top and bottom performers was 12.35 percentage points. The spread for 2050 funds was only six percentage points.
“There's a significant difference in the amount of equity held,” in 2015 funds with the most conservative at 25% and the most aggressive exceeding 50%, said Lori Lucas, executive vice president and defined contribution practice leader at Callan Associates. “It seems to get much more pronounced as you near retirement because of different philosophies.”
The index returned an annualized 8.93% for the two years ended Sept. 30; 9.21% for three years; and 2.47%, five years.
The index represents $464 billion in assets across 40 providers with 63.6% of target-date funds having a “through” retirement glidepath and 36.4% with a “to” retirement glidepath.
Ms. Lucas said that in recent years, longer-dated funds have reduced equity allocations to around 80% from 90% and increased diversification and the focus on risk management.
“What we tend to see is that target-date funds tend to be on average more aggressively managed than the typical DC portfolio,” Ms. Lucas said.
