Target-date fund assets increased to $620.8 billion as of Dec. 31, up 7.4% from Sept. 30 and up 28% from a year earlier, according to a report released Monday by Ibbotson Associates, a unit of Morningstar.
Target-date funds posted an average 5.4% investment return for the three months ended Dec. 31 and a 16.3% return for 2013.
Although the report described the average full-year target-date fund return as “very strong,” it also noted that the yearly return was just under half the 32.4% return of the S&P 500 index. However, the target-date fund return was well above the -2% return for the Barclays U.S. Aggregate Bond index.
During the fourth quarter, the S&P 500 return was 10.5%, while the Barclays U.S. Aggregate Bond index return was -0.1%.
Because equity markets significantly outperformed fixed-income markets, “target-date funds with large equity allocations substantially outperformed funds with smaller equity allocations,” the report said.
The Ibbotson/Morningstar report is based on analyzing 51 target-date fund families with 458 unique funds that have a track record of at least one year. Ibbotson/Morningstar's target-date research tracks only open-end mutual funds, said Alexa Auerbach, a spokeswoman for Morningstar.
