Target-date funds have worked as expected so far in 2020. Riskier, later-dated funds have behaved more like the equities that make up most of their allocations, while nearer-dated funds have done better at preserving capital. The now $1.3 trillion* industry has grown in the number of fund offerings and options for investors to find their risk profile and horizons.
Could've been worse: Funds dated 2040 and later averaged a -11.3% return year-to-date, with those dated earlier averaging -5.5%. The range of returns was wider for funds closer to retirement, and active funds outperformed passive in equity-heavy funds.
Different strokes: Varying equity allocations dictated the return ranges across fund group returns. Equity mixes of "to" vs. "through" funds in those dated nearer than 2040 increased the dispersion of returns among those groups.
In a hole: The first-quarter drawdown was faster and more extreme than the decline at the end of 2018 into 2019. While the climb back may have begun, the average 2040 fund investor needs a 42.9% return from the bottom just to break even.
Mixed emotions: First-quarter fund flows deviated from prior five-year patterns across all fund subsets. Near-dated funds saw assets leave in droves, while those further out on the horizon bought the dip.
*Per Morningstar Direct database of mutual funds and ETFs. **As of May 14. Sources: Bloomberg LP, eVestment LLC, Morningstar Inc.