Investors who held onto 2010 target-date funds through the market crisis of 2008 actually made modest gains for themselves, and target-date funds now being created are expanding to include nontraditional asset classes in their mix.

These may be the two most unexpected results of a Morningstar survey of trends in the target-date funds industry, which had its critics during the market downturn.

The Morningstar 2011 Target-Date Series Research Paper concluded that target-date funds held by near retirees in 2008 when the funds received the most criticism "rebounded nicely" by 2010.

"In fact, investors who held on to their target-date 2010 funds through 2008's crisis and ensuing rally have generally emerged with modest gains," the survey concludes. "From stocks' Oct. 9, 2007 peak through February 17, 2011, target-date 2010 funds gained a cumulative 5% on average. Of the 23 funds in operation through the entire period, 14 posted gains."

In addition, target-date funds are evolving and now including more nontraditional asset classes in the mix, such as commodities, derivatives and hedging type strategies, the survey found. The changes are modest but are probably being driven by the down market, which prompted investors to want less-correlated investments in the portfolios, Morningstar concludes. The findings are part of an annual survey of target-date trends conducted by Morningstar.

The makeup of the funds for those reaching retirement varies more widely than might have been expected, Morningstar says, with retirement-income funds carrying higher allocations to stocks and riskier asset classes, such as high-yield and foreign bonds.

At the same time, target-date funds are continuing to grow in popularity in part because of the U.S. Department of Labor regulation that allows retirement plans to designate target-date funds as default investments for employees who do not choose a specific investment option for their 401(k) plans.

Target-date funds had a net inflow of $47.5 billion in 2010, continuing a healthy inflow of funds that carried through even the 2008 market crash. The 2010 inflow was slightly more than 2009's $45 billion in net inflows. Total net assets in open-end target-date funds reached $341 billion.

The existing leaders in the field, Fidelity, Vanguard and T. Rowe Price, still dominate the industry with 76% of the market share, but that is down a bit from the 81% those companies held in 2007.

"Smaller and midsize series have been growing quickly, due to a number of factors, such as strong distribution networks and innovative and appealing structures," Morningstar says.

Wells Fargo is one of the winners of the shift in market share with net inflow of investments up 129% in 2009 and 37% in 2010.

In addition, Invesco Balanced-Risk Retirement and PIMCO RealRetirement have been particularly innovative in their series structure, emphasizing generating real return and limited risk close to retirement, the survey says.

Another unexpected finding, according to Morningstar, is that target-date funds have continued to attract new money even after the investors' reach their retirement date. Funds designed for investors retiring in 2005 and 2010 have continued to see small, but positive, net inflows, possibly because account holders have postponed retirement or because large contributions are off-setting smaller withdrawals.

"The trend may impact the way target-date funds manage their asset allocation in post-retirement years," Morningstar says.

-Karen DeMasters