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Performance dispersion among target date funds

Author

Listed:
  • Ivelina Pavlova

    (University of Houston – Clear Lake)

  • Ann Marie Hibbert

    (West Virginia University)

Abstract

There are significant differences in the performance of Target Date Funds (TDFs) with the same target year. Using a unique dataset from Morningstar, we show that within the same target year, funds with lower than the average expense ratio, or higher than average allocation to equities, outperform similar funds. This outperformance exists across all target year groups and is economically meaningful. Furthermore, deviations in the equity allocation have a greater impact on performance than does expense ratio. Using bootstrap simulations to investigate the impact over a longer horizon, we show that deviations from the average allocations or expense ratios have a meaningful impact on the retirement savings of an average investor.

Suggested Citation

  • Ivelina Pavlova & Ann Marie Hibbert, 2024. "Performance dispersion among target date funds," Journal of Asset Management, Palgrave Macmillan, vol. 25(4), pages 369-382, July.
    • Handle: RePEc:pal:assmgt:v:25:y:2024:i:4:d:10.1057_s41260-024-00349-0
    DOI: 10.1057/s41260-024-00349-0
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    More about this item

    Keywords

    Target date funds; Expense ratio; Fund alphas; Portfolio risk;
    All these keywords.

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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