Collective investment trust target-date funds have moved ahead of their mutual fund cousins, grabbing 50.5% of assets as of June 30, according to data from Morningstar Direct.
“Target-date CITs have been capturing most of the target-date net flows since at least 2020,” said a Morningstar report published Aug. 8. “For example, in 2023, they collected 67% of total target-date net inflows.”
The CIT gains have been aided by target-date funds converting to CITs from mutual funds.
“Based on reported data, more than $22.6 billion in target-date mutual funds converted to CITs in 2023,” said the report by Meghan Pacholok, senior manager research analyst at Morningstar.
“Despite their shrinking market share, target-date mutual funds still hold a large part of the market and likely won’t be obsolete soon,” the report said.
By year-end 2023, CIT target-date funds had $1.7 trillion in assets, or 49% of the market. A strong first-half 2024 pushed the CIT target-date assets to approximately $1.9 trillion, creating the narrow lead over mutual fund target-date funds. The mutual fund target-date market share was 71% in 2015, the Morningstar report said.
“Why the migration? CITs tend to be cheaper because they don’t have to follow the reporting standards of the Investment Company Act of 1940 that governs mutual funds,” the report said.
“Plan sponsors and other clients can negotiate CIT fees with the providers, so, particularly for large retirement plans, CIT expenses are often lower than those of mutual funds. They also tend to have lower administrative costs.”
However, there is a “shadow side” to CIT target-date funds because they are less transparent, the report said.
“Unlike mutual funds they don’t have to disclose their managers, their experience, if they’ve joined or left the strategies recently, or if they invest in the portfolios,” the report said. "It’s impossible to assess a management team without this information.”
According to Morningstar, the largest CIT target-date series, as of June 30, are: Vanguard Target Retirement ($739 billion); BlackRock LifePath Index ($275 billion); T. Rowe Price Retirement ($218 billion): State Street Target Retirement ($168 billion); and Fidelity Freedom Index ($68 billion).
