Top performers: Target-date funds 2000-2015
Target-date funds are supposed to be an easy pick for advisers and clients looking for a low-cost, hands-off solution for retirement planning. But as advisers and clients know all too well, no two funds are alike, meaning that their assets, costs – and their performance – can vary widely.
Among the funds with a target retirement of 2015, a Vanguard fund beat “nearly 75% of its broad peers, including index and passive and active strategies over the past five years," says Jeff Holt, Morningstar’s associate director of multi-asset strategies research. "That's an indicator that active management has struggled over the last five years."
The first target-date fund was launched in 1994 but did not gain in popularity for another decade, when they received a boost from the Pension Protection Act, creating a safe harbor for them to take hold as a default investment in clients' 401(k) plans, Holt says. By last year, investors poured a record $69 billion into the funds, Holt says.
"Year-over-year we continue to see growth and there are really no major obstacles to prevent for future growth, as well," he adds. "They have a clear runway."
The first five slides outline the top performing funds with target years of 2000, 2005 and 2010 ranked by their five-year returns. The second set of five slides highlights the top performers with the target year of 2015.
All this week, look for data on target-date fund performance for 2020 through 2055.