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.

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.

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 range in grey shows each target date vintage’s equity exposure at the 10th and 90th percentile across the full glidepath.

Target Date Performance 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 June 30, 2018

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

Second Quarter Performance Overview

The Callan Target Date IndexTM rebounded from weak performance in the beginning of the year and gained 1.06% in the second quarter. For the trailing one-year period the Index increased 7.96%. By comparison, the median target date fund (TDF) manager underperformed the Index during the second quarter, posting a 0.81% return. Over the trailing one-year period the Callan Target Date Index is now seven basis points ahead of the median manager. But over the trailing five-year period, the median manager outpaced the Index by eight bps annually.

Target date funds benefited from U.S. large-cap equity exposure, with the S&P 500 gaining 3.43% in the quarter. In contrast, virtually all other asset classes detracted from second quarter results.  The Bloomberg Barclays US Aggregate Bond Index fell by 0.16%. Non-U.S. and emerging market equity exposure also dragged on performance, with the MSCI ACWI ex USA Index declining -2.61% and the MSCI Emerging Markets Index falling -7.96%.

The spread between the best and worst managers widened somewhat from last quarter, with those in the bottom 90th percentile gaining 0.16% and those in the 10th percentile up 1.31%. For the trailing year, TDF managers in the 90th percentile posted gains of 6.70%, while those in the 10th percentile rose 8.82%.

Long-dated vintages typically with equity-heavy allocations benefited from growth in the U.S. stock market, outperforming near-dated vintages heavy with fixed income for the quarter. In the second quarter, the median 2015 TDF gained 0.62%, while the median 2050 TDF rose 1.17%. For the year, the median 2015 TDF was up 5.34% compared to the median 2050 TDF, which gained 10.51%.

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 51 basis points; the 10th percentile is 72 bps; the 90th percentile is 12 bps (i.e. the higher the fee, the lower the ranking). Much of the difference is driven by active versus passive implementation of target date glide paths.

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 64 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 Greg Ungerman, DC Practice Leader, at ungerman@callan.com