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.

2

1

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

3

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.

4

2

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

5

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.

6

3

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

7

...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.

8

4

Growth Rates and Market Shares by Distribution Channel

9

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.

5

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

11

Average Industry Equity Allocation % for 2009 and 2010

? 2006 Morningstar, Inc. All rights reserved.

12

6

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

13

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.

14

7

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.

16

8

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download