New research released by Brightscope and Target Date Analytics analyzes 34 target-date fund families including 400 distinct target-date funds shows that competition and more conservative glidepaths are primary drivers of market change.
"The big takeaway points were that glidepaths are getting more conservative," says Brooks Herman, head of research for BrightScope. "Some of the funds families are learning from the [stock market and financial collapse] in 2008." More companies (40%, compared to 30% in 2007) are bringing their glidepath down to its landing point at the target date. Putnam changed from “through” to “to” and broadened the asset allocation to include alternatives.
"Competition is moving the market. Fidelity has released a new target-date fund series [and] TIAA-CREF has a completive fee structure to compete with Vanguard," Herman says. The new series is a “to” series, which aims for more wealth generation during the accumulation phase and more safety near the target-date phase. According to Herman, "it's an interesting paradigm shift. It used to be one size fits all, but it looks like there is enough pressure on the recordkeepers that they have to branch out to meet the needs of the 401(k) market."
Though there is competition, fees as a whole are still high, with 75 basis points as the average institutional TDF. A lot of mutual fund families use overlay fees in addition to the usual fee to manage the portfolio of mutual funds, BrightScope finds.
BrightScope projects target-date assets to reach $2 trillion in 401(k) plans by 2020, and Herman says this is because of the behavior of plan participants. "They want to buy and forget; it's the purpose of the target-date fund, it rebalances it for you. They'll buy it and forget about it for 30 years."
