Among target-date providers, Ms. Pacholok said she didn't see major changes in strategies aside from some tactical adjustments in some actively managed target-date funds such as trimming equity exposure, moving to more conservative fixed-income options and shortening duration on some fixed-income investments.
None of the largest target-date fund providers to DC plans escaped the carnage. For example, assets managed by top-ranked Vanguard Group Inc. fell 14.1% to $741.1 billion. BlackRock, in second place, saw target-date assets slide 11.4% to $339.6 billion. Third-place T. Rowe Price Group Inc. suffered a 13.6% decline to $293.3 billion.
Over five years, however, target-date fund assets under management grew by 56%, according to P&I data.
Consultants, researchers and providers say the historically steady target-date growth aided by design features — auto enrollment, auto escalation, qualified default investment alternatives — should keep dollars flowing despite 2022 having been a uniquely bad year.
One encouraging sign: For the first five months of 2023, the S&P 500 stock index was up 9.6%, and the Bloomberg Aggregate Bond index was up 2.5%.
"Target-date funds are meant for a very long life cycle," said Callan's Mr. Ungerman, adding that market results so far suggest a "significant bounce-back" this year.
A glass-half-full verdict for last year was that investors who stayed with their target-date funds would enjoy dollar-cost averaging as their investments rebounded. Target-date investors don't trade as frequently as do-it-yourself investors, industry members and consultants said.
Target-date fund watchers noted that although investment declines were painful, a key metric for assessing target-date fund resilience is inflows vs. outflows.
Even if individual investors sold part of their target-date investment, plan designs mean money would still be coming in.
Last year, for example, the Alight Solutions 401(k) index reported that target-date funds accounted for the most trading outflows (53% of assets) by participants among 13 asset classes. However, target-date funds also represented the largest source of contributions (47%) among the asset classes.
Although $1.77 billion was traded out of target-date funds, $4.94 billion was contributed, Alight said.
The trading outflows were due primarily to participants seeking more conservative investments such as stable value funds, said Robert Austin, the Charlotte, N.C.-based director of research for Alight Solutions.
"We didn't see as much outflows for people taking their money out" of their institutional accounts, he added.
The inflows were a combination of auto features and more people entering the workforce, he said.
Trading was more active during the first half of 2022, then moderated. "There were no winners last year, so people slowed down" looking for other investments, he said. "There was no real clear path where you should go in 2022."
By contrast, in 2021, outflows from target-date fund trading exceeded inflows via contributions — $5.22 billion for the former vs. $4.97 billion for the latter. "People were rebalancing" because equities were strong that year, Mr. Austin said.
Early returns this year show some rising confidence as trading is starting to pick up a bit, he said. For the first quarter, target-date fund trading outflows were $310 million while contributions were $2.6 billion.
The Alight 401(k) index reflects activity of more than 2 million participants with more than $200 billion in Alight record-keeping accounts. The target-date category also include some target-risk assets, which account for less than 10% of the total.
Target-date funds remain the largest category in the Alight 401(k) universe with 29.9% of assets last year, followed by large-cap U.S. equity (25.7%) and stable value (9.6%) as of year-end 2022.