SUMMARY
- The S&P Target Date® Scorecard provides performance comparisons and analytics covering the target date fund (TDF) universe.
- The S&P Target Date Index Series offers representative benchmarks for TDFs. The series is investable, comprises consensus-derived asset allocation weights, and its composition is known in advance of evaluation periods.
- After recovering all of their COVID-19-related losses in 2020, continued optimism over the health of the U.S. economy helped U.S. equities to continue their upward trajectory in the first half of 2021.
- Economic reopenings offered a particular boost to smaller companies, which are typically more domestically focused in their revenue exposures. Indeed, small caps led the way over the 12-month period ending June 30, 2021; the S&P Small Cap 600® (up 67%) beat both the S&P MidCap 400® (up 53%) and the S&P 500® (up 41%).
- Unsurprisingly, far-dated S&P Target Date Indices once again posted higher returns than their nearer-dated counterparts; the former were helped by their greater equity allocations.
- But as we have highlighted before, nearer-dated S&P Target Date Indices outperformed over all time horizons on a risk-adjusted basis. The risk reduction from allocating more heavily to fixed income—a typically less volatile asset class compared with equities—more than compensated for the lower returns.
- The relative returns of TDFs with fewer assets improved compared with our previous reports. Equal-weighted returns were higher than asset-weighted returns in five vintages over the one-year horizon and in seven vintages over the five-year period. However, the picture was little changed over the three-year horizon; asset-weighted returns were higher across the board.
- S&P Dow Jones Indices also produces S&P Target Date Style Indices. The “To” style indices aim to reduce the impact of market drawdowns around the expected retirement date, while the “Through” style indices aim to mitigate longevity risk—the risk of outliving one’s assets in retirement. Hence, “Through” style indices have higher equity allocations than “To” indices.
- “Through” style indices posted higher returns than their “To” counterparts, while “To” style indices posted lower volatilities. Overall, near-dated “To” style indices posted higher risk-adjusted returns than their “Through” counterparts. The opposite was true for far-dated style indices.
