Fidelity and BlackRock surpassed by Vanguard as top target-date fund manager.

• In 2021, Vanguard Group's Target Retirement Funds received the highest net investment from retirement savers, totaling $55 billion.
• American Funds and Fidelity Investments ranked third and second, respectively.
• Several years, investors have been shifting to low-fee funds, including Vanguard and Fidelity, which offer among the industry's lowest-cost TDFs.

In 2021, Vanguard Group regained the top spot it had held for over a decade in target-date funds, capturing the most new investor money relative to other asset managers, according to a new Morningstar report.

Over the past ten years and a half, target-date funds (TDFs) have gained popularity in 401(k) and other workplace retirement plans. These funds allow investors to choose a fund that closely matches their expected retirement date, with the fund becoming more conservative as investors approach retirement age, transitioning from stocks to bonds.

Employers often treat the funds in a 401(k) plan as an investment for employees who are automatically enrolled.

Record contributions

In 2021, TDFs received $170 billion in new contributions, surpassing their previous record, and their total assets reached $3.3 trillion, a 20% increase from the previous year, according to Morningstar.

For years, investors have been moving towards lower-cost funds, and Vanguard, known for its low-cost offerings, and other popular TDF managers have profited from this trend.

In 2021, Vanguard's Target Retirement Funds received $55 billion from retirement savers, which is approximately one-third of the total money invested in TDFs, as per Morningstar.

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Fidelity Investments' Freedom Index Funds, the most popular type of TDFs offered by the firm, attracted $45 billion in investments, ranking second. Despite this, the total amount invested in all of Fidelity's target funds was $35 billion, as investors withdrew money from the flagship Fidelity Freedom series, according to Morningstar.

In 2021, the American Funds Target Date Retirement Series and T. Rowe Price's LifePath Index funds collected $26.2 billion and $25 billion of net money, respectively, ranking third and fourth, according to Morningstar.

In 2020, Fidelity and BlackRock held the top two positions, respectively.

Since 2008, Vanguard had maintained the top position, but experienced a decline in 2020. However, according to Megan Pacholok, an analyst on Morningstar's multi-asset manager research team and co-author of its annual target-date report, published Wednesday, Vanguard regained the top spot in 2021.

Vanguard, Fidelity and BlackRock have among the lowest-cost target-date funds.

In 2020, the three largest asset managers, BlackRock, Fidelity, and Vanguard, captured approximately $22 billion, $19.8 billion, and $19.5 billion in their most popular target-date funds, respectively.

Pacholok stated that the scramble atop the leaderboard was likely due to the Covid-19 pandemic.

"The market drawdown in 2020 likely caused people to be more hesitant in keeping up with their contributions, as we believe," she stated.

A BlackRock spokesperson declined comment.

Fidelity has been providing exceptional outcomes for plan sponsors and participants in its target date funds since the launch of the Freedom Funds in 1996, making it one of the few providers with a track record that extends over 25 years, according to Claire Putzeys, a Fidelity spokesperson.

At the end of 2021, Vanguard managed approximately $1.2 trillion of TDF assets, which is about 36% of the total market. Fidelity managed $460 billion (14% of the total), and BlackRock managed $289 billion (8.8%). BlackRock ranks fourth in total TDF assets, with T. Rowe Price in third place, managing $374 billion.

Unlike Fidelity and Vanguard, BlackRock does not serve as a 401(k) plan administrator.

Low costs

Both investors and employers who offer TDFs to their employees frequently prioritize low costs as a key factor in their decision-making process.

Across the investment industry, there has been a shift towards index funds, which have lower annual fees compared to actively managed funds.

In 2021, the cheapest fifth of TDFs received $59 billion of investor money, an increase from $41 billion in 2020, while the three most expensive quintiles experienced a net withdrawal of $38 billion, according to Morningstar.

Target-date mutual fund flows are being driven by low fees, with cheaper series attracting more investor interest than pricier ones, according to a Morningstar report.

According to Morningstar, the Fidelity Freedom Index, Vanguard Target Retirement, and Schwab Target Index have the lowest fees among target-date mutual funds. Investors pay an annual fee of 0.08% on their investments, which amounts to $8 a year for a $10,000 investment.

Both the BlackRock LifePath Index and State Street Target Retirement funds have a 0.09% annual expense.

Over the past five and 10 years, the American Funds series has been one of the top-performing series, despite having low costs compared to its peers and being actively managed, according to Morningstar.

TDFs may not make sense for all investors, though.

Younger employees and those with less investing experience may benefit from "set it and forget it" funds, as they simplify financial management by automating essential functions such as de-risking and portfolio rebalancing.

While TDFs are suitable for investors nearing retirement, it's essential to reassess their role in the context of their evolving financial situation. For instance, a TDF's allocation of stocks to bonds may not align with the investor's overall portfolio.

Morningstar's report has been corrected, and this article has been updated accordingly.