Callan Target Date Index™

This index allows plan sponsors, managers, and participants to track the performance and asset allocation of available target date mutual funds and collective trusts.

Quarterly Performance

Target date funds extended their gains from the beginning of the year with a second quarter increase in the Callan Target Date Index of 2%. Due to its solid performance over the last three quarters, the Index is back in positive territory for the trailing one-year period, returning 0.90%.

Target date funds benefited from domestic equity exposure, with the S&P 500 gaining 2.46% in the quarter. Domestic bonds also aided results, with the Bloomberg Barclays U.S. Aggregate Index returning 2.21%. However, in a familiar refrain, international equity exposure was a drag on performance, with the MSCI EAFE Index declining -1.46%.

For the third consecutive quarter, the median target date fund manager underperformed the Index, returning 1.78%. The median target date manager lagged the Index by 81 basis points for the trailing one-year period. In the past three years, the median manager has underperformed the Index nearly 60% of the time on a quarterly basis.

The spread between target date fund returns tightened from last quarter, with top decile funds gaining 2.20%, and bottom decile funds returning 1.11%. For the trailing year, the median target date manager produced a modest 0.09% gain, with the best performers up 1.39% and the worst performers declining -1.65%. The spread in performance underscores the variety that exists within the target date universe. Over the longer term—the trailing five-year period—the median target date manager returned 5.55% per year, underperforming the Callan Target Date Index by 71 basis points annually. However, top performing target date funds bested the Index by 0.65% annually.

Performance did not vary much by target date vintage last quarter, with the median 2050 target date fund gaining 1.87% and the median 2010 target date fund gaining 1.96%.

The median target date fund’s expense ratio is 0.57%, with ratios as high as 0.78% and as low as 0.14%. Much of the difference is driven by active versus passive implementation of target date glide paths.

Target Date Snapshot

The Callan Target Date Index – Average of All Vintages chart gives a snapshot of the performance of the Callan Target Date Index. We show the aggregate performance of the universe of target date funds at a glance by equally weighting every “vintage” within the target date fund glidepath (e.g., 2015, 2020, 2025, etc.). The charts also shows the range of performance of the Callan Target Date Index members, similarly weighted.

Index Performance as of Dec. 31, 2016

Average of All Vintages

Average of All Vintages

Retirement Income

Retirement Income

2010

2010

2015

2015

2020

2020

2025

2025

2030

2030

2035

2035

2040

2040

2045

2045

2050

2050

2055

2055

Glidepath Allocation

The Callan Target Date Index Asset Allocation chart provides insight into the underlying asset class composition of the Callan Target Date Index over the full asset allocation glidepath. Multiple views offer varying degrees of detail into asset allocation. The Macro Level View depicts the allocation over the course of the Index's glidepath (40 years before retirement and 20 years after retirement) across nine major asset classes. The Micro Level Views show the allocation over the course of the Index's glidepath broken out into much more granular asset classes with options to examine equity and non-equity asset classes separately.

Glidepath Allocation

Macro Level

Macro Level

Micro Level

Micro Level

Micro Level Equity View

Micro Level Equity View

Micro Level Fixed View

Micro Level Fixed View

Equity Rolldown

The Equity Rolldown Analysis chart displays the Callan Target Date Index’s equity allocation (excluding commodities and REITs) across the full asset allocation glidepath, including 40 years prior to and 20 years after retirement. The full range of equity rolldowns across all funds in the Callan Consensus Target Date Index is represented in grey.

Equity Rolldown

Equity Rolldown

Equity Rolldown

Expense Ratio

The Expense Ratio Analysis shows the distribution of expense ratios for funds within the Target Date Fund Index. The group includes the lowest fee share class of mutual funds as well as collective trusts. For this universe, the median expense ratio is 0.57%; the 10th percentile is 0.78%; the 90th percentile is 0.14% (i.e. the higher the fee, the lower the ranking). This fee data will be updated on an annual basis.

Expense Ratio Analysis

Expense Ratio

Expense Ratio

Methodology

The Callan Target Date Index is an equally weighted composite of 44 target date fund series, including both mutual funds and collective trusts. It is updated quarterly. To accurately benchmark a target date fund it is essential to determine an appropriate target date fund index. Many current target date indices simulate capital markets and derive an artificial glidepath to create a suite of target date indices.

This approach could be labeled biased or subjective – or even worse, arbitrary – because it does not objectively represent the target date opportunity set. After all, if a given target date fund’s performance differs from such an index, what does that really signify that is meaningful from an evaluation perspective? To avoid this problem, Callan constructed a consensus glidepath that is driven by the actual glidepaths offered within the industry.

Questions on the Callan Target Date Index? Contact Lori Lucas, DC Practice Leader, lucas@callan.com