| NEW YORK, June 18
NEW YORK, June 18 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,
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
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.