2016 a Growth Year for Target-Date Funds

Jeff Holt: Target-date funds’ popularity continues to grow. Assets in target-date mutual funds topped $880 billion by the end of 2016. That’s up from $763 billion at the end of 2015. This growth came from both investors putting more money in the funds and the positive returns from them.

Estimated net flows across all 12 target-date fund Morningstar Categories was $59 billion in 2016. That's not far off their calendar-year high of $69 billion in 2015. The 2015, 2000-2010, and Retirement categories saw net outflows in 2016, but that can be expected since funds in those three categories are meant for investors who have already reached retirement.

Vanguard remains the most popular target-date fund choice and lengthened its lead with $37 billion in flows in 2016. American Funds' flows came in a distant second with nearly $16 billion. Still, some managers, including Wells Fargo and Fidelity, saw outflows in the year.

From a return respective, the average return for the target-date fund categories ranged from roughly 5% to 8%, with the more equity-heavy funds generally posting higher returns. The Russell LifePoints series was one of the stronger-performing series in 2016, as a sizable position in small-cap stocks boosted its equity returns. On the flip side, the Manning & Napier Target series landed near the back of the pack due to negative stock picks and only a small position in strong-performing financial stocks.

So while target-date funds remain popular for retirement investors, the experience can still vary significantly series to series.