Target-date funds took a step backward in the second quarter of 2012, but that did not stop the inflow of money into the funds or the growth of the total assets.
After averaging a nearly 9% return in the first quarter of the year, target date funds lost 2.8% in the second quarter, which brought the 12-month average down to a slight loss of 0.5%.
The blame can be laid at the feet of non-U.S. equities, according to the Ibbotson Target Maturity Report 2Q 2012. Ibbotson Associates, owned by Morningstar, is a provider of asset allocation, manager selection and portfolio construction services.
Target-date fund returns usually fall between the S&P 500 and the Barclays U.S. Aggregate Bond Index, but over the last 12 months the performance has been dragged down by exposure to non-U.S. equities, according to the report.
The poor performance in equities brought the fund averages below the relatively strong performance of the S&P 500 (up 5.5%) and the Barclays U.S. Aggregate Bond Index (up 7.5%). Funds furthest from their retirement mark were hurt the most, according to the report.
At the same time, target-date funds benefited from investments in fixed-income allocations, particularly funds that had high allocations in TIPS, U.S. aggregate bonds and high-yield bonds.
Despite the up and down performance of target-date funds this year, the flow of revenue into the funds held up in the second quarter, with a $13.9 billion inflow during the period. Fidelity, Vanguard and T. Rowe Price continued to gain the majority of the revenue, capturing 73% of the new money. JP Morgan, John Hancock, TIAA-CREF, and BlackRock also had substantial gains, according to the report. Oppenheimer, Goldman Sachs and Columbia closed their target-date funds during the quarter.
Total assets in target-date funds grew during the second quarter to $431.5 billion, a 0.6% increase over the previous quarter. The big three, Fidelity, Vanguard and T. Rowe Price, continued to dominate with 75% of the total assets, but some smaller funds like Pimco also grew. Although it only has $298 million in assets, Pimco target-date funds, whose assets have tripled over the past three quarters, saw an increase of 12.8%. Significant increases also were seen by BlackRock (9.3%), Invesco (8%) and JP Morgan (7%).