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Target-Date Funds Get Cheaper, Use Tactical Allocation Well

Morningstar's annual industry study points to Fidelity as the new price leader, replacing Vanguard.

Morningstar's annual study of the target-date industry, out today, shows these retirement funds continue to get cheaper while garnering stronger performance in unexpected ways. The industry, which turned 20 years old in 2014 and captures most new dollars into retirement plans, consistently has pushed fees lower: For the fifth year in a row since Morningstar's first annual target-date survey, the industry's average asset-weighted fee has come down. It stood at 0.84% at the end of 2013, down from 1.04% in 2008.

Part of that movement comes from a longer-term trend favoring lower-priced index-based investments within target-date funds. The Fidelity Freedom Index series, for instance, now holds the mantle of lowest-priced series with its 0.16% asset-weighted fee, replacing Vanguard--with its 0.17% asset-weighted average expense ratio--as the cost leader.