Target-Date Funds Up in 3Q

According to Morningstar’s Ibbotson Associates, the average TDF returned 5.1% in the third quarter; for the 12-month period ending September 30, 2012, the average TDF returned a gain of nearly 19%, due to double-digit U.S. equity returns in the fourth quarter of 2011 and first quarter of 2012.

Ibbotson noted that flows into TDFs have remained strong with nearly $12 billion flowing into the category during the quarter.

TDFs continue to see total assets climb; as of the end of 3Q, total assets in TDFs were nearly $466 billion, a 36% increase from a year ago with Fidelity, Vanguard and T. Rowe Price holding about 75% of total assets.

Equities across the globe and across market capitalizations rebounded well in 3Q, boosting performance in diversified strategies such as TDFs. Non-U.S. developed and merging market equities outperformed U.S. equities. Within the U.S., large cap outperformed small cap and value outperformed growth. Commodities posted the strongest gains, returning almost 10% for the quarter. U.S. REITs (real estate investment trusts) showed moderate performance with a 1% return.

Fixed-income performance was more muted than equity returns this quarter. The higher credit seeking segments of fixed income, such as high-yield bonds, topped the list with a 4.5% increase during the period. Those asset classes with longer durations demonstrated decent performance, as can be seen with Treasury inflation-protected securities (TIPS) and U.S. aggregate bonds relative to U.S. short-term bonds and cash.

Ibbotson included performance information on the Morningstar Lifetime Allocation Indexes as an aid in benchmarking.

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