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The Best Target-Date Funds for 2021 and Beyond

Pimco joins our list of top target-date funds, and T. Rowe Price gets an upgrade.

Securities In This Article
BlackRock LifePath® Index 2050 Inv A
BlackRock LifePath® Index 2025 K
PIMCO Total Return Instl
PIMCO Real Return A
BlackRock LifePath® Index 2050 K

The coronavirus pandemic has presented the biggest challenge for target-date strategies since the financial crisis of 2008. These strategies' performance rebounded sharply from the first-quarter bear market, but the fallout from the economic shock continued to weigh on investor contributions throughout the year.

As of February 2021, target-date mutual funds held a record $1.6 trillion in assets, up from $1.1 trillion at the bottom of the 2020 coronavirus-driven bear market, and more than double the $740 billion they held five years ago. The record assets are mostly the result of market appreciation, as flows into target-date mutual funds slowed considerably in 2020.

We cover this slowdown in flows and other trends shaping target-date strategies in the recently published 2021 Target-Date Strategy Landscape. Morningstar Direct and Office clients can download the full report here.

Here, we'll take a closer look at our Morningstar Analyst Ratings for target-date mutual funds and highlight our top-rated series.

Morningstar Analyst Ratings for Target-Date Funds: Methodology Recap

In November 2019, we enhanced the methodology that underpins our qualitative, forward-looking Morningstar Analyst Rating. The updated methodology applies to equity, fixed-income, and multi-asset strategies and should improve our ratings' effectiveness and usefulness to investors. More information can be found here, but the high level changes are:

  • We moved from a five-pillar framework to three pillars--People, Process, and Parent--and moved to a more granular, five-point pillar rating scale (High, Above Average, Average, Below Average, Low) from a three-point scale (Positive, Neutral, Negative).
  • The Performance Pillar was absorbed into the People and Process Pillars. We removed the Price Pillar. Now, we simply subtract a fund's expenses from our estimate of how much value it can add before fees. As a result, each share class of a fund receives a tailored rating, with costlier share classes often receiving lower ratings than cheaper share classes. Previously, we assigned the same rating to all of a fund's share classes.
  • For target-date series, each vintage of a series will have the same ratings across share classes. For example, BlackRock LifePath Index 2050 K LIPKX and BlackRock LifePath Index 2025 K LIBKX both earn Morningstar Analysts Ratings of Gold, but BlackRock LifePath Index 2050 A LIPAX and BlackRock LifePath Index 2025 A LILAX, which have higher expense ratios, both earn Morningstar Analyst Ratings of Silver.
  • Our updated methodology sets a higher bar for target-date series. Formerly, we might have assigned ratings of Gold, Silver, or Bronze to a series that could beat its average peer across vintages but not its costless category index. Now, we only recommend series expected to beat both bogies after fees, adjusted for risk.

The Top Target-Date Funds

The table below shows ratings assigned to the cheapest share class of the target-date fund series we cover, as of March 2021, along with the prospectus-adjusted expense ratio. It also highlights how the Analyst Rating, People Pillar, Process Pillar, and Parent Pillar changed between March 2020 and March 2021.

Overall, as you can see, three series' cheapest share classes were upgraded owing to higher conviction.

  • T. Rowe Price Retirement and MassMutual Select T. Rowe Price Retirement, which T. Rowe's management team runs in an identical fashion, were upgraded to Gold from Silver because of higher confidence in the series' process (which was upgraded to High from Above Average)
  • BlackRock LifePath Dynamic was upgraded to Silver from Bronze because of higher confidence in the management team (which was upgraded to High from Above Average).

Only one series, TIAA-CREF Lifecycle, was downgraded, and this was due to our updated methodology. Our conviction in the series' management team and process hasn't changed, but under the new methodology it is tougher to earn our highest Analyst Rating given the low dispersion of returns among target-date funds and higher degrees of confidence in the teams and approaches at other series.

New Gold Series

Series that newly qualify for a Morningstar Analyst Rating of Gold include:

  • T. Rowe Price Retirement and MassMutual Select T. Rowe Price Retirement. These were both upgraded to Gold owing to higher conviction in the series' process, which was upgraded to High from Above Average. In 2020, management announced its intention to increase the amount of equity throughout the glide path over the next two years to better combat the risk of investors outliving their assets in retirement. As a result, it will have the most equity-heavy glide path throughout the accumulation phase and at retirement relative to any other target-date fund that we cover. This will lead to more-volatile returns versus peers, particularly in periods like the first quarter of 2020. But for investors who are willing to endure a potentially bumpy ride, we believe there is considerable upside to owning this series over the long-term thanks to its combination of forward-thinking managers and skilled underlying managers.
  • Pimco RealPath Blend. This series, which was added to coverage in December 2020, tactfully allocates the equity portion of the glide path to low-cost broad market Vanguard index funds and uses its stellar in-house active bond funds for fixed-income exposure. About 95% of the series' assets reside in Morningstar Medalist funds, most of which are rated Gold, indicating our high conviction in the underlying funds. The index funds have an enduring edge versus most actively managed equity funds thanks to their low fees and broad market-cap-weighted exposure that has proved difficult to beat consistently over the long term. And the bond funds include firm stalwarts Pimco Total Return PTTRX and Pimco Income PIMIX, both rated Gold, as well as a mix of more niche holdings, like Pimco Real Return PRTNX and Pimco High Yield PHDAX.

Series That Continue to Set the Gold Standard

Our analysis included two target-date series that retained their Analyst Ratings of Gold, although both saw significant manager changes: BlackRock LifePath Index and JPMorgan SmartRetirement Blend.

In December 2020, BlackRock announced that Matt O'Hara, co-head of its LifePath suite of target dates, had left the firm. O'Hara was a key figure in keeping BlackRock's target-date funds ahead of the curve. In 2014, he led the research that drove a revamping of the LifePath glide path. While O'Hara's departure is a loss, the remaining team has lost none of its intensive focus on research that will continue to improve the series. Chris Chung, head of asset allocation on the team since 2018 and a team member since 2008, replaced O'Hara as lead manager on BlackRock LifePath Index, and the firm further bolstered the team's resources by naming Partha Mamidipudi head of human capital research. He led research for the team until 2016 and rejoined from his role building customized portfolio-optimization tools for advisors on Aladdin. We remain confident in the team's capabilities.

At J.P. Morgan, Anne Lester stepped down as a portfolio manager for the JPMorgan SmartRetirement and JPMorgan SmartRetirement Blend series in April 2020, in anticipation of a move to focusing on national retirement policy. Lester had overseen this series as lead manager since its inception in 2006, and though she relinquished day-to-day responsibilities on the series in early 2019, Lester continued to influence the strategic direction of J.P. Morgan's target-date series. Lester pioneered innovative retirement plan participant research that meaningfully enhanced the series and raised the bar for target-date managers in general. Naturally, her departure was a loss for this series.

Encouragingly, Lester's longtime comanager and 20-year J.P. Morgan veteran Dan Oldroyd stepped up as this series' leader. Oldroyd's long history with the team and the series inspires confidence despite the abruptness of Lester's announcement. However, Oldroyd's research and portfolio-implementation responsibilities had already increased meaningfully in the wake of a previous portfolio manager shakeup in 2019. Now Oldroyd has taken on Lester's participant research duties, too, and must marshal the vast multi-asset resources that support the series. With Oldroyd alone at the helm, we downgraded the SmartRetirement and SmartRetirement Blend series' People Pillar to Above Average from High, but SmartRetirement Blend retained its Gold rating because of its low fees. SmartRetirement was downgraded to Silver.

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About the Authors

Jason Kephart

Director, Multi-Asset Ratings
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Jason Kephart, CFA, is director of multi-asset ratings for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for Morningstar’s multi-asset ratings methodology and shares responsibility for research priorities. Kephart leads the firm’s global and North American multi-asset ratings committees. Kephart regularly contributes to Morningstar’s thought leadership on target-date strategies, 60/40 portfolios, model portfolios, and other multi-asset outcome-based products. He has been the lead analyst for multi-asset strategies from firms such as Vanguard, BlackRock, T. Rowe Price, and Dodge & Cox.

Before joining Morningstar in 2014, Kephart spent seven years as a journalist for InvestmentNews, Fund Action, and SmartMoney, reporting primarily on the mutual fund and exchange-traded fund industries.

Kephart holds a bachelor’s degree in English from Florida State University. He also holds the Chartered Financial Analyst® designation.

Megan Pacholok

Manager Research Senior Analyst
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Megan Pacholok is a senior manager research analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She leads target-date strategy research and sits on the Morningstar Analyst Ratings Committee for multi-asset strategies in North America. Ms. Pacholok is an advocate for empowering investor success when saving for retirement and is a regular contributor to research on best practices for maximizing the potential of defined contribution and health savings plans. Her coverage responsibilities also include model portfolios, tax-managed strategies, and income-focused multi-asset funds.

Before joining Morningstar Research Services in 2019, she worked as a product consultant for Morningstar Direct.

Pacholok holds a bachelor's degree in finance and economics from DePaul University.

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