Performance dispersion among target date funds

Ivelina Pavlova () and Ann Marie Hibbert ()
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Ivelina Pavlova: University of Houston – Clear Lake
Ann Marie Hibbert: West Virginia University

Journal of Asset Management, 2024, vol. 25, issue 4, No 3, 369-382

Abstract: 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.

Keywords: Target date funds; Expense ratio; Fund alphas; Portfolio risk (search for similar items in EconPapers)
JEL-codes: D12 G11 J32 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1057/s41260-024-00349-0

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