Morningstar Report Reveals Collective-Investment Trusts Poised to Overtake Mutual Funds in Target-Date Strategies in 2024

Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment insights, today published its annual Target-Date Strategy Landscape Report, which found that in 2023 investors poured $156 billion of net inflows into target-date strategies, of which $104.5 billion—or 67%—went into collective investment trusts (CITs). Net flows slightly increased year-over-year, helping propel assets to a record high $3.5 trillion.

“Investors in target-date strategies largely experienced positive returns in 2023, after the market turmoil of 2022. Low fees and research-driven glide paths continue to make target-dates a great tool for hands-off investors to save for retirement,” said Megan Pacholok, senior manager research analyst at Morningstar. “This year, we saw target-date CITs continue their momentum, and we expect them to surpass mutual funds as the most popular target-date vehicle by the end of 2024.”

The 2024 report provides an in-depth analysis of the target-date industry, including 2023 asset flow data, the pivotal role of fees in series selection, a performance breakdown for active- versus index-based series, and trends influenced by large plan sponsors on investors.

The Target-Date Strategy Landscape Report is available here. Key findings from the report include:

• Target-date assets reached a new high of about $3.5 trillion after gathering roughly $156 billion in net flows in 2023 and experiencing market appreciation.
• CITs now represent 49% of the market and are on pace to overtake mutual funds as the most popular target-date vehicle this year. These offerings absorbed 67% of total flows in 2023.
• The five managers with the largest share of target-date assets collectively hold around 80% of the total market and have mixed splits between mutual fund and CIT assets. Vanguard, T. Rowe Price, and BlackRock have the majority of their assets in CITs, while Fidelity and American Funds have a larger asset base in mutual funds.
• Investors are favoring cheaper target-date options, which paired with firms cutting fees, helped push the asset-weighted expense ratio for target-date funds to 0.30% in 2023 from 0.32% the year prior. Funds in the lowest expense quintile saw substantial inflows while the four other quintiles experienced net outflows.
• Target-date providers have rounded out their product shelves by launching multiple series that have the same equity glide path but use all active funds, all passive funds, or a mix of both. After reviewing long-term performance trends, returns after fees are largely similar to one another despite the differences in underlying funds.

Morningstar today published a Fund Spy article on Morningstar.com that reviews the latest ratings for target-date fund series covered by Morningstar analysts, available here.