Target Maturity Funds See Negative Returns in Q210

Ibbotson’s Q2 2010 Target Maturity Report said the average target maturity fund had a negative return for the first time in five quarters. Although on average value was destroyed during the quarter, the negative 7.6% average target maturity fund return in the second quarter was notably better than the negative 11.4% return of the S&P 500 Index due to the diversification target maturity funds typically have.   

According to the report, the weighted-average return of the 13 indexes that collectively form the Morningstar Lifetime Moderate Index family was negative 7.3%, slightly better than the average target maturity fund. However, figures over the past 12 months ending June 30, 2010 tell a different story with positive double-digit returns for each metric.   

For the second quarter, each index in the Morningstar Lifetime Allocation Index family, which is based on Ibbotson’s Lifetime Asset Allocation methodology, was negative with returns ranging from just less than 0% for the Conservative indexes in retirement to worse than a 10% loss for the Aggressive indexes furthest from retirement. Ibbotson said the strong quarterly underperformance was due to the very weak performance of equity markets around the world.   

One-year performance ranged from nearly 9% to more than 15%.  

Overall, target maturity flows slowed considerably in the second quarter of 2010 after a big rebound in the first quarter. Monthly flows in May and June reached lows that have not been seen since the height of the financial crisis in October and November of 2008.   

Target maturity fund flows have averaged $3.9 billion per month over the trailing 36 months, but reached only $2.6 billion in May and $2.1 billion in June.