The average target-date fund expense ratio dropped to 91 basis points last year, down 8.1% from the 99-basis point average in 2011, according to an annual report on target-date funds issued Thursday by Morningstar Inc., Chicago.
“It is pretty significant,” Josh Charlson, senior mutual fund analyst, said in an interview.
Mr. Charlson said the overall decline was due in part to increased use of passively managed target-date funds and to the continuing trends of defined contribution plans seeking lower-cost share classes within a specific target-date series.
He said the biggest factor in the industry average's decline was the closing last year of several of the most expensive target-fund series including those from Goldman Sachs Asset Management, OppenheimerFunds and Columbia Management Investment Advisers.
Since 2008, the annual average asset-weighted expense ratio among open-end mutual fund target-date funds has declined steadily from 104 basis points, according to the Morningstar report. The firm’s analysis covers open-end mutual fund target-date funds and excludes custom target date funds.
The report noted that actively managed target-date funds accounted for 68% of total target-date fund assets last year, or $330.9 billion, vs. $154 billion for passively managed funds. But the percentage of actively managed fund assets has been shrinking steadily. In 2006, the Morningstar report said, actively managed target fund assets represented 85% of total target-date fund assets.
Mr. Charlson pointed out that passively managed target-date funds “achieved a milestone” last year when, for the first time, estimated net inflows into these funds exceeded estimated net inflows into actively managed funds — $28.8 billion vs. $26.1 billion.
