Morningstar Target Date Series Research Report 2011
[Pages:18]Morningstar Target Date Series Research Report 2011
? Josh Charlson, Senior Mutual Fund Analyst
? 2009 Morningstar, Inc. All rights reserved.
Background and Scope of Study ? Study published annually ? Broad perspective on key trends and data of target-date industry ? Captures full target-date universe, not just rated series ? Includes recurring datapoints and annual special topics ? Data drawn from Morningstar Direct and custom data studies
? 2006 Morningstar, Inc. All rights reserved.
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Organization of Study
? Introduction examines industry flow patterns, based on Morningstar Direct Fund Flows
? Remainder follows Morningstar's five "P's" ? Process (glide path) ? Performance ? Price ? People ? Parent
? The "P's" form basis of Morningstar Target Date Ratings, but used more broadly for the study
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Trends in Target-Date Flows
? Target-date funds continue to attract strong flows relative to other mutual-fund categories
? Pace has slowed from previous years ? Decline in assets held in Direct distribution channels ? Big Three continue to dominate market share; organic growth slows ? Role of collective trusts a question mark
? 2006 Morningstar, Inc. All rights reserved.
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Target-Date Fund Growth Strong But Leveling
Annual Target-Date Fund Flows ($mil)
Total Target-Date Fund Flows
2004
14,149
2005
2006
22,114 35,274
2007
2008
2009
2010
58,452 43,071 45,030 47, 445
Organic Growth Rate %
825
128
80
76
33
39
22
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Inflow Rate Surpasses Comparable Fund Categories
Net Flows and Organic Growth Rate by Broad Asset Class, 2009-2010
US Broad Asset Class
Alternative Balanced Commodities International Stock Municipal Bond Taxable Bond U.S. Stock
Estimated Net Flow $ 2009
14,981,634,253 271,451,749
10,212,431,942 22,944,555,636 72,772,682,063 290,417,135,355 (23,768,411,227)
Organic Growth Rate % 2009
36.50 0.05 124.48 2.80 21.95 27.54 (1.05)
Estimated Net Flow $ 2010
22,882,689,527 12,418,861,488 12,628,271,392 42,406,536,672 12,042,550,986 216,651,244,566 (75,140,990,463)
Organic Growth Rate % 2010
35.16 1.84 54.79 3.67 2.63 14.22 (2.50)
? 2006 Morningstar, Inc. All rights reserved.
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Largest Families Maintain Dominance...
Market Share % for Largest Target-Date Series as of 12/31/10
Fidelity Investments Vanguard T. Rowe Price Principal Funds Wells Fargo Advantage American Funds TIAA-CREF
2007 Market Share %
48.06 17.40 16.36 6.01 1.27 0.86 0.80
2008 Market 2009 Market
Share %
Share %
43.01 38.83
21.24 22.12
15.82 16.46
5.87
5.60
1.47
2.36
1.93
2.44
1.19
1.59
2010 Market Share %
36.52 23.27 16.31 5.03 2.68 2.61 1.99
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...But Some Competing Series Are Growing Quickly
Estimated Net Flows and Organic Growth Rates 2009-2010, Selected Fund Families
JPMorgan USAA Maxim Russell Hartford
2009 Est Net 2009 Organic 2010 Est Net 2010 Organic Flow (mil $) Growth Rate % Flow (mil $) Growth Rate %
342.5
36.4 1, 282
78.9
533.2 310.7 739.6
87.5
161
-- 904.7 549.2
216.3
71.1 165.57
25.7
38.6
45.4 163.2 102.9
? 2006 Morningstar, Inc. All rights reserved.
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Growth Rates and Market Shares by Distribution Channel
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Inflows Continue After the Retirement Date
Fund Flows for 2005 Target-Date Funds
Year
2004 2005 2006 2007 2008 2009 2010
Total Net Assets $
673,384,129 1,581,642,322 2,503,414,080 3,841,053,590 3,311,476,295 4,262,035,826 4,824,472,358
Estimated Net Flow $
592,934,628 854,593,779 749,069,412 1,139,147,219 340,482,809 289,195,843 120,009,837
Organic Growth %
1,289 127 47 46 9 9 3
10
? 2006 Morningstar, Inc. All rights reserved.
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Process: Providers Tinker with Glide Paths
? Adding Commodities/Real Assets: T. Rowe Price, Fidelity, Oppenheimer, Principal, and others
? Reducing equity exposure: Schwab, Oppenheimer, MassMutual ? Increasing international equity allocations: Vanguard, T. Rowe ? Volatility-management and tail-risk strategies: Invesco,
AllianceBernstein, Legg Mason, PIMCO ? Adding absolute return: Putnam ? Moving from "stepped" glide path: ING
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Average Industry Equity Allocation % for 2009 and 2010
? 2006 Morningstar, Inc. All rights reserved.
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Glide Paths Exhibit Range of Philosophies
Equity Allocation % per Target Year
2055 2045 2035 2025 2015 2010
Average % Minimum % Maximium %
93
89
99
89
38
100
84
38
95
70
38
86
53
20
75
42
20
67
Number of Funds
17 36 36 36 37 38
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No Consensus on "To" vs. "Through"
? Our survey of 41 glide paths found 22 in "through," 18 in "to" ? "To" glide paths accelerate more rapidly toward landing point ? Philosophies and glide paths don't always match up ? Prospectus language is often vague, confusing, or incomplete
? 2006 Morningstar, Inc. All rights reserved.
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No Consensus on "To" vs. "Through"
Equity Allocations for "To" and "Through" Glide Paths
2010 Target Allocations
Landing Point Allocations
Average % Minimum % Maximum %
Average % Minimum % Maximum %
"Through" Funds "To" Funds
50
25
67
29
15
40
33
24 50
NA NA NA
15
Average Equity Allocations for "To" and "Through" Glide Paths
? 2006 Morningstar, Inc. All rights reserved.
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