Industry experts agreed that as plan sponsors review their investment options, they will continue to be focused on low-cost funds, as they were last year. In 2019, target-date funds, a relatively low-cost investment option, posted notable asset gains, rising 30.7% to $1.89 trillion from 2018 and more than double the $811.2 billion in 2014, according to P&I's annual survey.
Vanguard Group Inc., which again topped all managers with $1.52 trillion in U.S. institutional tax-exempt DC assets, up 29.1% from 2018, attributed the growth in part to its target-date funds. "Due to their diversification benefits and wide use as QDIAs in defined contribution plans, Vanguard's target-date series continue to lead the industry in cash flow," said James Martielli, head of investment solutions within Vanguard's institutional investor group in Malvern, Pa.
Vanguard's target-date funds posted nearly $69 billion in inflows in 2019, and through year-to-date June 30 had amassed $16 billion in net inflows, according to Mr. Martielli. Overall, Vanguard's target-date strategies held $650.1 billion in assets as of Dec. 31, up 36.7% from $475.6 billion the year before, according to P&I data.
BlackRock Inc., ranked second with $1.04 trillion in DC assets, also attributed the 25.6% jump it posted in DC assets in part to its LifePath target-date franchise. Assets in the target-date series were up 36% from 2018, said Anne Ackerley, managing director and head of BlackRock's retirement group in New York.
BlackRock's target-date strategies held a total of $255.1 billion as of Dec. 31, according to P&I data.
"In terms of organic growth, we anticipate BlackRock will continue to outpace the industry, particularly in our target-date franchise given the breadth and strength of our franchise, our dedication to innovation and deep client relationships," Ms. Ackerley said.
Capital Group Cos. Inc., sixth among managers with $451.4 billion in assets, up 23.2% from 2018, partly chalked up its growth to its "superior, risk-adjusted returns" as well its target-date strategy, a "consistent driver of growth in assets and market share," said Ralph Haberli, president of Capital Group's institutional retirement client group in Los Angeles.
Assets in Capital Group's target-date strategies totaled $138.2 billion as of Dec. 31, and grew 48% year-over-year driven by strong gross sales, net flows and market appreciation, he said.
Capital Group also attributed its growth to the rollout last year of collective investment trusts, which gave the firm access to a wider segment of plan sponsors, Mr. Haberli said, adding that target-date CITs raised $2.3 billion in assets in 2019.
"Capital heads into the second half of 2020 and beyond with strong momentum and a path to continue to expand our reach across DC plans and plan participants," he said.
The ongoing focus by plan sponsors on investment costs is reflected in the robust growth of commingled funds, which outpaced that of mutual funds, according to P&I's survey findings. Commingled funds totaled $2.37 trillion in assets, up 19.5% from $1.99 trillion in 2018. Mutual funds, in contrast, grew 15.4% to $2.9 trillion.
On a five-year basis, the growth rate of commingled funds relative to mutual funds is even more stark. Commingled funds AUM jumped 61.3% since 2014 while mutual funds grew 29.4%.
The faster growth of commingled funds is driven by the desire for lower fees and plan sponsors becoming more comfortable utilizing the options, such as collective investment trusts, and communicating them to participants, Cammack's Mr. Volo said.
Mr. Volo expects commingled funds to continue to grow faster than mutual funds in the near term as information about the pooled vehicles become more readily available, but he sees low-cost mutual fund share classes "closing the gap."
Ross Bremen, a partner at investment consultant NEPC LLC in Boston, also sees commingled funds continuing to grow faster. "All the fee litigation has certainly led plan sponsors to consider lower-cost collective trust offerings," he said.
Of note, separate accounts posted even healthier growth than commingled funds on a year-over-year basis. In 2019, separate accounts reached $1.46 trillion in assets, up 20.8% from $1.21 trillion in 2018 and up 54.9% from 2014.