The effect was strong outperformance of target-maturity funds further from retirement as those funds tend to allocate much higher levels to equity. During the last 12 months there was mixed performance among asset classes around the globe, which resulted in disparate performance among target-maturity funds.
Performance highlights (or lows) for the quarter include:
• The average return for target maturity-funds during the quarter was nearly 9%, more than 3.5% below the S&P 500 Index but more than 8.5% better than the BarCap U.S. Aggregate Bond Index.
• For the second consecutive quarter, all target-maturity funds with at least a one-year history ended the period with a positive return. Those funds furthest from retirement had the strongest relative performance as equities significantly outperformed fixed income.
• Assets poured into target-maturity funds during the first quarter. This combined with the strong performance among equities resulted in total AUM for target-maturity funds exceeding $429 billion, hitting an all time high.
To view the full report, visit http://corporate.morningstar.com/ib/documents/TargetMaturity/2012Q1TargetMaturityReport.pdf.
Ibbotson also released a research paper that examines how to evaluate the performance of a target-date fund. Picking the best target-date benchmark and simply comparing the return and risk to the fund won’t provide an accurate picture. The paper explains how to adjust for glide path and asset allocation differences between the benchmark and fund and then how to evaluate the underlying funds within the target date fund and overall fees to get a true picture of performance.
The paper can be accessed at http://corporate.morningstar.com/ib/documents/MethodologyDocuments/IBBAssociates/UsingTargetDateBenchmark.pdf.