- The S&P Target Date® Scorecard provides performance comparisons, equal- and asset-weighted category averages, and analytics covering the target date fund (TDF) universe.
- Past performance of the “Through” glide path category, as represented by the S&P Target Date Through benchmarks, is significantly different from that of the “To” category, as represented by the S&P Target Date To benchmarks. This is because of generally higher equity allocations within the Through TDFs. Report 4 shows the difference in three-year annualized total returns between the To and Through benchmarks by vintage. The maximum difference of 1.58% occurred in the 2015 vintage, while the minimum was in 2060+.
- As has been the case in past scorecards, most asset-weighted average TDF returns continued to be higher than equal-weighted returns over one-, three-, and five-year time horizons. This indicates that some larger TDFs earned relatively higher returns than some of the smaller counterparts. Among other factors (such as differences in net expenses), this may reflect greater equity allocations in larger TDFs during the U.S. equity market rally since early 2009.
- The S&P Target Date Index Series is a representative benchmark for TDFs. The series is used extensively throughout the report and distinguishes itself from peer group benchmarks because it is investable, comprises consensus-derived asset allocation weights, and its composition is known in advance of evaluation periods.
- The S&P Target Date To and Through Indices offer stakeholders stylespecific measures of the two prominent approaches to glide path management within the TDF universe. These indices may be appropriate for plans that seek a tighter-fitting TDF benchmark than one covering the entire industry.
- Underlying data is obtained from the Morningstar® U.S. Open-End Fund Database. The S&P Target Date Scorecard is published semiannually.
- A Representative Target Date Benchmark: The S&P Target Date Index1 is the only consensusdriven target date benchmark offered by an independent index provider. Its asset class exposure and glide path are functions of market observations acquired from an annual survey of target date managers. The index currently includes target dates from retirement income through 2060+. The S&P Target Date To Retirement Income and the S&P Target Date Through Retirement Income series were launched in January 2015, and performance is incorporated as accumulated history becomes available.
- Apples-to-Apples Comparison: Target date fund returns are sometimes compared to popular asset class benchmarks such as the S&P 500 or Bloomberg Barclays U.S. Aggregate Bond Index.The S&P Target Date Scorecard avoids this pitfall by measuring a fund's returns against the returns of the benchmark that is most appropriate for each target date category.
- Asset Allocation Risk Revealed: Sometimes custom, multi-asset class benchmarks are used for comparison purposes. However, these benchmarks do not measure asset allocation risk, as they are typically set with asset class exposure selected by fund managers. They also may lack transparency with respect to the method behind their calculation and may not be adjusted for changes in asset allocation policy over time. The report avoids these problems by referencing our consensus-driven target date benchmark that provides a representative proxy of asset allocation risk for each target date vintage.
- Asset-Weighted Returns: Average returns for a fund group are often calculated using only equal weighting, which results in the returns of a USD 10 billion fund affecting the average in the same manner as the returns of a USD 10 million fund. An accurate representation of how market participants fared in a particular period can be better ascertained by calculating weighted-average returns, in which each fund’s return is weighted by net assets. The S&P Target Date Scorecard shows both equal- and asset-weighted averages. Additionally, we now use all share classes to calculate average TDF returns and performance quartiles.
- Data Cleaning: Appropriate peer groups are built from underlying databases so meaningful benchmark comparisons may be performed. TDFs with vintages of 2060 or beyond are compared with the S&P Target Date 2060+ Index. TDFs with vintages that have already passed, such as 2005, are compared with the S&P Target Date Retirement Income Index. Average TDF returns, both equal-weighted and asset-weighted, are calculated using all share classes within each fund family in order to represent the aggregate experience of TDF shareholders. The S&P Target Date Scorecard offers the only comprehensive, periodic, and publicly available source of such data. Reports are available at www.spdji.com.
A UNIQUE SCORECARD FOR THE TARGET DATE UNIVERSE
The S&P Target Date Scorecard presents the performance of TDFs as compared to appropriate benchmark indices. We consider all target date asset allocation policies to be active decisions, so we include funds that use passive underlying investments as well as active underlying investments. The scorecard covers target dates from retirement income to 2060 and beyond, and it has the following unique features.