DC funds feel market volatility
Defined contribution investors see portfolios part ways after a strong first half of 2019, May notwithstanding, as the period that followed proves more volatile.
Across the most commonly held funds in defined contribution plans, equity funds are ahead an average 16% on the year despite an average -1.9% decline so far in the third quarter, while bond funds are up over both periods as interest rates have declined throughout the year. Target-date funds, on average, have performed somewhere in between depending on their equity exposure.
The index strategies among the equity fund group fared better than their active peers. Passive funds, all tied to the performance of the S&P 500, outperformed the active funds by 121 basis points, year-to-date through Aug. 16. Performance was mixed among the active managers and in line with their historical style preferences. Growth stocks have outperformed value by about 10.1 percentage points so far in 2019, which largely explains the return lag between the value-focused Dodge & Cox Stock fund and Fidelity's Growth Company fund.
Fixed-income funds have been happy to ride interest rates lower with an average year-to-date return of 8.5%. Eight of the top 10 funds are actively managed and outperformed Vanguard and Fidelity's index options by about 48 basis points. PIMCO's Income fund, popular among DC plan sponsors in recent years, lagged the group and was the only fund to decline so far in the third quarter. The fund manages a relatively lower duration compared to peers, which can be detrimental in a falling rate environment.