As the number of CIT-based target-date funds has soared, the number of mutual fund-based target-date funds has remained stagnant in recent years.
There were 134 CIT strategies last year vs. 58 in 2015, according to Morningstar Direct. The number of mutual fund strategies rose to 57 from 54 during this period.
Mr. Kephart noted the overall yearly numbers reflect some ebb and flow in each category as some series are liquidated and others merge.
However, the recent rise in new CIT target-date series has been dramatic — 22 last year, 23 in 2019 and 12 in 2018, according to Morningstar Direct. Among mutual fund target-date series, there were four over this period.
Mr. Kephart pointed out that many of the new series are relatively small products often issued by trust companies in groups of three investment styles — aggressive, moderate and conservative. Still, some of the biggest names in asset management offered new target-date funds last year, including T. Rowe Price Group Inc., Nuveen and Pacific Investment Management Co. LLC.
T. Rowe Price was the third-largest provider of all target-date funds based on assets, as well as the third-largest provider of CIT target-date funds last year, according to Morningstar. The company added its fourth CIT target-date series in January 2020; it also has two mutual fund-based target-date series.
The newest CIT target-date series emphasizes active management with about 93% of underlying investments being actively managed. That's the same percentage as another CIT target-date series. The difference is that the newer series has a slightly lower equity exposure.
Another target-date series has an approximately 60% passive/40% active ratio and still another has a 20%/80% ratio of passive management to a combination of active management and enhanced index.
"The No. 1 driver is sponsors unbundling their expense structure" by moving away from revenue-sharing, said Joseph Martel, a Baltimore-based target-date portfolio specialist at T. Rowe. "They want to separate investment expenses from administrative expenses."
CITs also provide fee flexibility. The more target-date fund assets in a plan, the more a sponsor can negotiate fees.
Each CIT series has a sliding scale of fees vs. assets. For example, the CIT series with the 60/40 mix of passive and actively managed investments charges 46 basis points for a plan with $20 million to $100 million in target-date assets. If a plan devotes $4 billion to $5.5 billion in target-date fund assets, the fee is 19 basis points.
"In most plans, target-date funds are the largest assets," said Mr. Martel, referring to their prominent role as a qualified default investment alternative.
For institutional clients, the mutual fund target-date series require a $1 million minimum in target date assets, although this requirement may be waived under certain circumstances. Through January, the T. Rowe Price mutual fund series' aggregate assets were about $176 billion vs. the CIT aggregate assets of about $146 billion, he said. CIT assets have been gaining over the years through new money and through transfers from the mutual fund series, he added.
The glidepaths for all of the target-date series are the same — a "through" approach in which the ratio of equity to fixed income changes past the standard landing point retirement age of 65. Target-date funds using the "to" approach freeze the equity-fixed income ratio at the landing point.