Defined contribution plan participants continued to invest in target-date funds while reducing their holdings in fixed income and increasing allocations to U.S. small-cap and midcap equities in 2013, according to a report from Northern Trust.
Target-date funds drew 14.6% of asset flows in retirement plans tracked by Northern Trust in 2013, the strongest flows of any investment category. It was the second year of strong flows into target-date funds, which accounted for 15.7% of all assets in the Northern Trust universe of DC plans, the second largest share of any category.
“Target-date funds have dominated asset flows, benefiting from their status as the preferred qualified default investment in most DC plans,” said Jim Danaher, managing director of defined contribution solutions at Northern Trust, in a news release.
“With the increased adoption of auto enrollment and other automated features, we anticipate that target-date funds will continue to experience strong growth, eventually accounting for the majority of DC assets,” Mr. Danaher added.
In addition, the report shows that many participants continue to shift between asset classes from year to year. Fixed income saw net outflows of nearly 11% in 2013, for example, after the category had net inflows of 9.2% in 2012. U.S. midcap and small-cap equity drew 6.3% and 4.4%, respectively, in net new flows in 2013 after losing assets the previous year.
Northern Trust's annual report, the Defined Contribution Tracker, analyzes data from nearly 100 retirement plans in the U.S. for which Northern Trust provides custody services, representing more than 1.7 million participants and $225 billion in assets.