Though some target-date managers are seeing net outflows from their mutual fund-based products, they are counting on their collective investment trust-based target-date businesses to pick up the slack.
T. Rowe Price Group Inc., Fidelity Investments and Principal Financial Inc. each saw mutual fund target-date fund assets decline between 2017 and 2018 while their CIT target-date businesses advanced, according to data compiled by MornFidelity Investmentsidelity Investments and Principal Financial Inc. each saw mutual fund target-date fund assets decline between 2017 and 2018 while their CIT target-date businesses advanced, according to data compiled by Morningstar Inc.
The target-date managers are capitalizing on growing interest among plan sponsors for CITs, which boast lower costs, greater flexibility and fewer regulatory/administrative requirements.
"We typically see 70% of inflows flowing into DC plans going to the target-date funds," said James Veneruso, a Summit, N.J.-based senior vice president and defined contribution consultant for Callan LLC, referring to the overall target- date market. He said participants and sponsors have become more comfortable with CITs, which don't trade on the stock market like mutual funds.
"CIT fact sheets have come a long way in the past decade," Mr. Veneruso said. "They now look almost identical to the mutual fund fact sheets investors are used to seeing. There is also a shift where few get their quotes or price information from newspapers and most likely are using their plan website as a source of information."
Providers also have made their CIT target-date series more accessible to small- and midsized DC plans, enabling them to participate alongside their larger brethren.
"Some managers now waive minimums," Mr. Veneruso said. "Lower minimums are increasingly becoming more common, so the $150 million (for target-date assets) might be stale at this point. Plans see more substantial savings as their target-date fund assets grow and they become eligible for cheaper classes of the CITs."
To qualify for T. Rowe Price's CIT target-date series, a plan needs a minimum of $20 million in target-date assets, reduced from $50 million in 2017. This enables the firm to serve "a wider range of clients," said Joseph F. Martel, multiasset portfolio specialist for the Baltimore-based firm.