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Target Date Funds: Characteristics and Performance

Author

Listed:
  • Edwin J. Elton
  • Martin J. Gruber
  • Andre de Souza
  • Christopher R. Blake

Abstract

As a result of poor asset allocation decisions by 401(k) participants, 72% of all plans now offer target date funds, and participants heavily invest in them. Here, we study the characteristics and performance of TDFs, providing a unique view by employing data on TDFs holdings. We show that additional expenses charged by TDFs are largely offset by the low-cost share classes they hold, not normally open to their investors. Additionally, TDFs are very active in their allocation decisions and increasingly bet on nonstandard asset classes. However, TDFs do not earn alpha from timing or their selection of individual assets.

Suggested Citation

  • Edwin J. Elton & Martin J. Gruber & Andre de Souza & Christopher R. Blake, 2015. "Target Date Funds: Characteristics and Performance," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 5(2), pages 254-272.
    • Handle: RePEc:oup:rasset:v:5:y:2015:i:2:p:254-272.
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    File URL: http://hdl.handle.net/10.1093/rapstu/rav004
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    Citations

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    Cited by:

    1. Mao, Mike Qinghao & Wong, Ching Hin, 2022. "Why have target-date funds performed better in the COVID-19 selloff than the 2008 selloff?," Journal of Banking & Finance, Elsevier, vol. 135(C).
    2. Edwin J. Elton & Martin J. Gruber & Andre de Souza, 2016. "Target Risk Funds," European Financial Management, European Financial Management Association, vol. 22(4), pages 519-539, September.
    3. Mao, Mike Qinghao & Wong, Ching Hin, 2022. "Managerial commitment and heterogeneity in target-date funds," Journal of Empirical Finance, Elsevier, vol. 68(C), pages 1-19.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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