Performance dispersion among target date funds

There are significant differences in the performance of Target Date Funds (TDFs) with the same target year. Using a unique dataset from Morningstar, we show that within the same target year, funds with lower than the average expense ratio, or higher than average allocation to equities, outperform si...

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Bibliographic Details
Published in:Journal of asset management 2024-07, Vol.25 (4), p.369-382
Main Authors: Pavlova, Ivelina, Hibbert, Ann Marie
Format: Article
Language:English
Subjects:
Cost control
Datasets
Economics and Finance
Employees
Equity
Finance
Financial Services
Investigations
Lifecycle funds
Original Article
Pension funds
Risk Management
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Summary:There are significant differences in the performance of Target Date Funds (TDFs) with the same target year. Using a unique dataset from Morningstar, we show that within the same target year, funds with lower than the average expense ratio, or higher than average allocation to equities, outperform similar funds. This outperformance exists across all target year groups and is economically meaningful. Furthermore, deviations in the equity allocation have a greater impact on performance than does expense ratio. Using bootstrap simulations to investigate the impact over a longer horizon, we show that deviations from the average allocations or expense ratios have a meaningful impact on the retirement savings of an average investor.
ISSN:1470-8272
1479-179X
DOI:10.1057/s41260-024-00349-0