U.S. target-date fund assets hit $503 bln in 2012 -BrightScope

NEW YORK, June 18 Tue Jun 18, 2013 12:00am EDT

NEW YORK, June 18 (Reuters) - Target-date funds saw 20 percent growth in assets last year as more companies encouraged employees to funnel money into these all-in-one retirement vehicles, according to data released on Tuesday by BrightScope, a 401(k) data provider.

Boosted by a higher stock market, target-date funds held more than $503 billion at the end of 2012, BrightScope said.

BrightScope's study provides new evidence that competition between fund families is driving prices down and forcing companies to offer more choices to retirement plan participants.

Target-date funds, which pool money from investors who plan to retire about the same time, are sometimes criticized for high fees. Expense ratios average 0.70 percent, BrightScope said. But that number decreased by 0.02 percentage point in 2012.

The three cheapest offerings include Vanguard's 11 target-date funds, with an expense ratio of 0.18 percent; TIAA-CREF Lifecycle Index's 10 funds, at 0.18 percent; and the 12 Fidelity Freedom Index funds, at 0.19 percent.

BrightScope ranks target-date funds by risk-adjusted performance and other factors on a scale of 1 (worst) to 5 (best). American Century, JPMorgan SmartRetirement and MFS-branded funds received top scores.

Funds offered by Putnam Investments slipped by two grades to a 3, as their stock holdings under-performed the benchmark, said Brooks Herman, head of data and research at San Diego, California-based BrightScope.

Putnam is a subsidiary of Great-West Lifeco.

Most target-date fund offerings are closed architecture, meaning they do not allow investments in funds offered by other companies. But more funds are opening their doors to outside money managers. The percentage of closed-architecture fund providers declined to 58 percent in 2012, down from 68 percent a year earlier, BrightScope said.

Overall, the number of fund families offering target-date funds decreased to 48 in 2012 from 50 in 2011 as companies like Goldman Sachs Group Inc. and OppenheimerFunds Inc. left the market.

Herman said that marketing funds to defined-contribution plan sponsors can be expensive and fruitless for second-tier firms.

Employers' consistent month-to-month investments in the plans deliver streams of cash into the hands of asset managers in good markets and bad, making the market an appealing place to be for fund providers, Herman said.

The dominant companies in the product class are Fidelity Investments, Vanguard Group and T. Rowe Price Group Inc. .