The Best Target-Date Funds for 2022 and Beyond
Only one series earned an upgrade to the coveted Gold-medalist ranking this year.
Target-date strategies play an integral role for many Americans saving for retirement. They typically serve as the default investment option in their defined-contribution plan. In 2021, investors poured net inflows of $170 billion into target-date strategies--more than double the year prior--and pushed assets managed to a record $3.27 trillion. Although net contributions into target-date mutual funds bounced back from their 2020 dip, the prominent shift to collective investment trusts accounted for most of the new money. In 2021, net inflows to CITs outpaced mutual funds $146 billion to $24 billion; CITs now comprise 45% of assets in target-date strategies. If this trend continues, CITs will overtake mutual funds as the most popular target-date vehicle within a few years.
Morningstar covers the uptick in flows and the growing popularity of CITs as well as other trends shaping target-date strategies in the recently published 2022 Target-Date Strategy Landscape. Morningstar Direct and Office clients can download the full report here.
In this article, we'll take a closer look at our Morningstar Analyst Ratings for target-date mutual funds and highlight our top-rated series.
The table below shows ratings assigned to the cheapest share class of the target-date fund series covered by Morningstar analysts, as of March 2022. It also highlights how the Analyst Rating, People Pillar, Process Pillar, and Parent Pillar changed between March 2021 and March 2022.
Higher confidence in American Funds Target Date Retirement series’ approach boosted its Process Pillar to High from Above Average, and that in turn shifted its Morningstar Analyst Rating to Gold from Silver. Fidelity Advisor Freedom’s strong allocation team and impressive underlying funds boosted its People Pillar to High from Above Average, leading to an upgrade to its Morningstar Analyst Rating of Silver from Bronze. Schwab Target Index Series debuted at a Morningstar Analyst Rating of Bronze, supported by its use of compelling building blocks and a low-price tag of 0.08% across its vintages.
A few other pillar changes (three downgrades and one upgrade) reflect our reassessment of the industry and its best practices, but they did not impact the overall Morningstar Analyst Rating of those offerings.
Only one series earned an upgrade to the coveted Gold-medalist ranking this year. Increased confidence in American Funds Target Date Retirement’s asset-allocation process and the robust processes of its underlying funds support this higher rating. It is the second target-date series to earn a High rating across all Pillars, indicating Morningstar analysts’ strong conviction in the series’ long-term potential. It features a standout lineup of actively managed funds, with 90% of assets in Morningstar Medalist funds. The equity funds are paired with high-quality bond funds that provide downside protection during equity selloffs, such as the coronavirus-driven drawdown in 2020’s first quarter. Overall, its ability to balance top-down and bottom-up decision-making provides potential for the long run.
Editor's Note: The table and article were corrected to include mention of Fidelity Advisor Freedom’s upgrade.
Megan Pacholok does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.