Fees to continue to play a meaningful role in the due diligence process of target-date funds as performance becomes more similar among peers.
Target-date fund fees are falling, but the cheapest funds have fallen at a faster pace than the most expensive over the past 10 years.
Despite a wide range of investment philosophies, target-date funds' performance is becoming more alike.
Fees have explained more of the performance difference between target-date funds further from retirement than those closer.
Over the five years ended Oct. 31, 2018, fee differences accounted for roughly 28% of the performance difference between top-quintile and third-quintile 2040 funds, but only 7% of the same gap in 2020 funds. Both were still higher than the longer-term average, however. This argues for fees to continue to play a meaningful role in the due-diligence process of target-date funds even as performance becomes more similar among peers.
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