TDFs Post First Annual Loss Since 2008

Positive fourth-quarter performance was not enough to pull target-date funds out of negative territory, according to the Callan Target Date Index.

The Callan Target Date Index posted a 2015 return of -0.86%, its first annual loss since 2008, the investment consultant reported.

The downturn came as several large target-date fund (TDF) managers reported increasing their glide path allocation to equities over the past several years, says Lori Lucas, head of Callan’s defined contribution practice. “After the carnage of 2008, when the median target-date fund lost 26.41%, target-date fund managers generally decreased their glide path allocations to equities and improved their overall diversification,” she notes.

However, the range of target-date fund performance last year was considerably narrower when compared with 2008. That year the range between best- and worst-performing target date funds (as measured by the 10th and 90th percentiles) was more than 22 percentage points. In 2015, the best and worst performers differed by fewer than 2 percentage points.

Target-date funds did rebound nicely in the final quarter of 2015, returning 3.01% as measured by the Callan Target Date Index. The funds benefited primarily from domestic equity exposure during the quarter, with the Standard & Poor’s (S&P) 500 gaining 7.04%. Though the domestic stock market enjoyed strong performance, bonds declined -0.57% as measured by the Barclays U.S. Aggregate Index.

The Callan Target Date Index is an equally weighted composite of 44 target-date fund series, including both mutual funds and collective trusts. It is updated quarterly. The index allows plan sponsors, managers and participants to track the performance and asset allocation of available target-date mutual funds and collective trusts.

More information is at Callan’s Target Date Index website.