The average target-date fund expense ratio fell to 84 basis points in 2013, from 91 basis points the previous year, said an annual target-date fund report by Morningstar.
The report, issued Tuesday, attributes the continuing fall of the average expense ratio to the continuing growth of passively managed assets.
Janet Yang, strategist, fund-of-funds strategies-North America, at Morningstar and lead author of the report, said there is a downward pressure in general for all target-date funds.
“Things are moving at a nice and healthy pace, plus there’s market appreciation,” Ms. Yang said, “so you would expect that the ratio could fall.”
Over the past two years, the average has fallen a total of 15.2% from a 99-basis-point average in 2011.
Overall, actively managed target-date mutual funds make up only 67% of the $623 billion in assets in 2013, down from a high of 90% in 2005, when there was just $71 billion in target-date fund assets. Sixty-eight percent of assets were actively managed in 2012.
Much of the large increase in passively managed assets in 2013 came from index-based series such as Vanguard Target Retirement Funds, which saw about $18 billion in net inflows for the year, while other managers that have historically offered actively managed target-date mutual funds introduced new passive products.
Ms. Yang also said what was particularly revealing was “how important these target-date fund assets are to (fund managers’) businesses.”
“On average, they made a third of those companies’ net new assets (in mutual funds), which is kind of incredible,” Ms. Yang said. “Some firms like T. Rowe Price, it made up almost all of their net new flows into mutual funds.”
Other passive products that received large net inflows were the Fidelity Freedom index, with $2.1 billion, BlackRock’s LifePath index, at $1.2 billion, and TIAA-CREF’s Lifecycle index, at $481 million.
Morningstar’s report covers only open-end mutual fund target-date funds and not custom strategies.
The report is available on Morningstar’s website.
