Morningstar Report Finds that Retirement Savers' Contributions Suffer Even as Target-Date Strategies Rebounded from Q1 2020 Bear Market

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Mar 18, 2021, 07:30 ET

CHICAGO, March 18, 2021 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today published its annual Target-Date Strategy Landscape Report, finding that total assets in target-date strategies stood at approximately $2.8 trillion at the end of 2020, an increase of 20% over the previous year. Flows into target-date funds and collective investment trusts (CITs) dropped to $52.3 billion in 2020, a 59% decline from 2019.

"The economic stress of the COVID-19 pandemic weighed on investors and retirement savers' contributions over the course of 2020. We saw total net inflows to target-date strategies fall, employers suspending 401(k) matches, and an increase in investor withdrawal rates," said Jason Kephart, strategist for the multi-asset and alternative strategies manager research team at Morningstar. "However, we think the target-date landscape is poised for continued growth and change. Longer-term trends show investors are prioritizing low-cost strategies and investing in collective investment trusts. Furthermore, there's skepticism about how long new regulatory restrictions on sustainable investments within retirement plans will last, while rules around the use of alternative investments like private equity were relaxed."

The 2021 report examines the impact of the economic uncertainty created by the COVID-19 pandemic on target-date contributions and explores key trends such as the rise of CITs, the continued importance of fees, and how regulatory changes affect the use of sustainable and alternative strategies in target-dates.

The Target-Date Strategy Landscape Report is available here. Additional key findings from the report include:

CITs continue to grow market share, now representing 43% of all target-date strategy assets and crossing the $1 trillion threshold for the first time. Additionally, CITs are driving majority of product development within target-date strategies. Unlike target-date funds, CITs are only available through qualified retirement plans, and asset-management companies can negotiate fees with each plan separately. CITs will likely become even more important for target-date providers, as two bipartisan bills introduced in 2020 would lift restrictions on CITs in 403(b) plans.
Fees continue to play an important role in shaping the target-date strategy competitive landscape. Against the backdrop of a decline in contributions in 2020, the bulk of net inflows went to the industry's cheapest share classes. The average asset-weighted fee for target-date funds, which depicts the actual cost investors are paying, fell to 0.52% from 0.58% in 2019, and 0.73% five years ago.
The BlackRock LifePath Index series collected the most net new money among target-date series, collecting approximately $22 billion in net contributions between its mutual funds and CITs. It's the first year since 2008 that Vanguard hasn't collected the most net new money among target-date strategies. Vanguard Target Retirement saw net inflows into its mutual funds and CITs drop by approximately 70% to $19 billion, yet it is still the first target-date strategy to surpass $1 trillion in assets.

Morningstar today published a Fund Spy article on Morningstar.com that reviews the latest ratings for target-date fund series that Morningstar covers, available here.

Morningstar Target-Date Fund Series Reports
Morningstar Target-Date Fund Series Reports (the Reports) are designed to help individual investors, financial advisors, consultants, plan sponsors, and other interested fiduciaries make informed decisions when selecting a series of target-date funds. The methodology for the Reports is available here.

Morningstar Target-Date Fund Series Reports and Morningstar's Analyst Ratings for target-date series are available in Morningstar Direct^SM, the company's global investment analysis and reporting platform for financial professionals, and in Morningstar Office^SM, Morningstar® Advisor Workstation^SM, and Morningstar® Analyst Research Center^SM, the company's investment planning and research platforms for financial advisors.

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $227 billion in assets under advisement and management as of Dec. 31, 2020. The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar's Manager Research Group's current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund's, CIT's or separately managed account's underlying securities' creditworthiness. This press release is for informational purposes only; references to securities or a separately managed account investment strategy in this press release should not be considered an offer or solicitation to buy or sell the securities or to invest in accordance with that strategy.

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SOURCE Morningstar, Inc.