Mutual fund assets in defined contribution plans posted healthy gains for the year ended June 30, thanks to the ongoing popularity of target-date funds among plan sponsors, Pensions & Investments' latest survey shows.
As of June 30, survey respondents reported proprietary mutual fund assets in U.S. defined contribution plans totaling $3.19 trillion, up 5.4% from $3.02 trillion a year ago. Of that, more than a quarter — $877.2 billion — was for target-date mutual funds. Target-date mutual fund assets grew 13.9% over the year and were up 101% from five years ago. In contrast, total assets in all other mutual fund categories grew just 2.6% to $2.31 trillion from a year earlier and 16.4% from $1.98 trillion five years ago.
Total assets managed in proprietary target-date strategies for U.S. DC plans in all investment vehicles, including commingled trusts and separate accounts in addition to mutual funds, climbed 10.9% to $1.7 trillion over the year and also more than doubled from five years ago.
"TDFs are getting the lion's share of new money, especially inside DC plans," said David Blanchett, head of retirement research at Morningstar Inc. in Chicago.
Assets in target-date funds have surged as plan sponsors increasingly select the funds as the qualified default investment option for plan participants, said Jason Shapiro, director of investments at Willis Towers Watson PLC in New York.
"You're seeing money flow into default solutions in general more regularly, more stably and in higher numbers," he said, adding that target-date funds are the most popular default investment option. "When new people come into a plan, they're more apt to be put in by auto features these days because plan sponsors are being more proactive in that regard."
Of the top target-date providers, Vanguard Group Inc. is in a league of its own. The Malvern, Pa.-based firm commands by far the largest slice of target-date business in defined contribution plans with $592.4 billion in assets, or 34.9% of the total, according to the data. T. Rowe Price Group Inc. jumped to second with $231.6 billion, followed closely by Fidelity Investments with $229.7 billion and BlackRock Inc. with $227.1 billion. J.P. Morgan Asset Management ranks fifth with $120.1 billion.
Vanguard also eclipsed its four closest rivals in year-over-year TDF asset growth. The money manager's assets jumped 26.2%, more than twice the growth rate of T. Rowe Price, which grew 12.8%, and BlackRock, which increased 11.7%. Both Fidelity and J.P. Morgan posted single-digit asset gains, up 8.8% and 5.2%, respectively.
Vanguard, however, was not able to beat the growth rate of sixth-ranked Capital Group Cos., which posted a 31.7% increase in assets, the biggest gainer of target-date fund assets for two years in a row. As of June 30, Capital Group's assets had swelled to $114.2 billion, more than double the $58 billion it had in 2017.