Target-date funds lost money last year, according to at least one index that tracks the investments.
The Callan Target Date Index returned -0.86 percent in 2015, the first annual loss since 2008, when the median TDF fund value dropped more than 26 percent.
The Callan Index takes data from 44 target date series in the market, and creates a benchmark for each "vintage," or target retirement year.
Recommended For You
The loss of 0.86 to the Callan index represents the average for all vintages.
Some funds in the Callan universe performed better than others, but the spread between the best and worst performers was notably small in 2015.
The funds in the top 10th percentile of performance lost 0.07 percent, while those in the 90th percentile, or lower end of the performance spectrum, lost 1.78 percent.
Last year's losses were muted by a strong fourth quarter, when the Callan Index returned 3.01 percent, as equity exposure in TDFs benefited from the more than 7 percent gain in the S&P 500.
The median expense ratio for the TDFs Callan tracks was 60 basis points, with the top 90th percentile, or cheapest funds, averaging 16 basis points, and the 10th percentile, or more expensive funds, averaging 82 basis points.
The discrepancy in cost reflects the degree to which actively managed investments are built into TDFs.
Jimmy Veneruso, vice president and a defined contribution consultant at Callan, says the industry is seeing "gradations" of active management in TDF strategies, due to continued fee pressure.
"Some of the standard bearers of active management are using passive implementation with certain areas of their fund's design," said Veneruso in an interview.
Blending passive and active strategies can resonate with sponsors, who are accustomed to the strategy visa via their experience with defined benefit plans.
Veneruso explains some managers' approach to TDF design in terms of a "fee budget."
"Where is it most efficient to spend your money on active management, and where isn't it. Some benchmarks are difficult to beat. That's where fund managers are implementing passive strategies," said Veneruso.
Large cap U.S. equity benchmarks have proven difficult for active managers to outperform. Consequently, it's an area where TDF managers are using index funds to help control overall management costs.
Other asset class benchmarks can be more readily beaten. Veneruso says small cap equity and emerging market equity are two allocations in TDFs getting more actively managed attention. On the fixed-income side, active opportunities exist in high-yield and non-U.S. fixed income asset classes, he said.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
