The average asset-weighted expense ratio for a target-date mutual fund series fell to 62 basis points in 2018, a historical low, said Morningstar's latest annual survey of target-date funds released Thursday.
It is also the 10th consecutive year the ratio has declined. It is down 4 basis points from 2016 and 41 points from 2009. The decadelong trend stems from "fee cuts on existing target-date series, the introduction of lower-cost series, the liquidation of higher-priced series, and investors' migration into a series' lower-cost share classes," the report said.
Morningstar's target-date fund report is available on its website. Registration is required.
Overall, target-date mutual fund assets dropped to $1.09 trillion at the end of 2018, down 1.8% from a year earlier, driven by negative returns that outpaced a healthy $55 billion in estimated net inflows. According to the report, "nearly all" of those inflows went to target-date series, with more than 80% of assets in index funds. Target-date fund returns saw an average decline of 6.22%, according to the report.
"Target-date funds play a central role in the retirement success for many Americans since they often serve as the default investment option in their defined contribution plan," said Jeff Holt, director of multiasset and alternative strategies at Morningstar, in a news release. "Though growth of target-date mutual funds stalled in 2018, the target-date market continues to expand into newer areas like CITs, reflecting retirement plan sponsors' desire to meet demand for the low-cost strategies. In this setting, we're excited to announce enhancements coming to our Target-Date Funds Series Reports that will help target-date investors identify how a target-date series stacks up in aspects that affect its future results, not just the price tag."
With the addition of low-cost collective investment trusts, target-date fund assets totaled $1.72 trillion at the end of 2018, up 1.2% a year earlier.
Vanguard, which remains by far the largest target-date mutual fund provider, saw its 2018 market share increase 2.1 percentage points to 36.5%. Fidelity Investments and T. Rowe Price Group's market share declined 1.1 percentage points and 1.8 percentage points, respectively, to 19.4% and 13.1%.
By comparison, just five years ago, Fidelity had the largest market share at 30%, with Vanguard at 26.7% and T. Rowe Price at 16.4%.