Vanguard reclaims top target-date fund manager spot it lost in 2020

Vanguard Group captured the most new investor money in its target-date funds last year relative to other asset managers, reclaiming the top spot it’d held for over a decade before being dethroned in 2020, according to a new Morningstar report.

Target-date funds, or TDFs, have become popular in 401(k) and other workplace retirement plans over the last decade and a half. Investors select a fund whose date best approximates their likely year of retirement; the fund gets more conservative as investors near retirement age, shifting from stocks to bonds.

Many employers use the funds as a de facto investment for employees who are automatically enrolled in a 401(k) plan.

TDFs raked in $170 billion of new contributions in 2021, an annual record, according to Morningstar. Total fund assets approached $3.3 trillion, up almost 20% from 2020.

Investors have been shifting toward lower-cost funds for years. Vanguard, which has branded itself as a low-cost provider, and other popular TDF managers have capitalized on the trend.

Retirement savers invested a net $55 billion in Vanguard’s Target Retirement Funds in 2021 — almost a third of all the money that flowed into TDFs, according to Morningstar.

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Fidelity Investments’ Freedom Index Funds, the firm’s most popular flavor of TDFs, pulled in $45 billion, ranking second. (The total was a smaller $35 billion across all Fidelity’s target funds, because investors withdrew money from its flagship Fidelity Freedom series, according to Morningstar.)

BlackRock‘s LifePath Index funds collected $25 billion of net money in 2021, ranking third, Morningstar said.

BlackRock and Fidelity had the No. 1 and No. 2 spots in 2020, respectively.

“Vanguard had held the top spot since 2008, but took a dip [in 2020],” said Megan Pacholok, an analyst on Morningstar’s multi-asset manager research team and co-author of its annual target-date report, published Wednesday. “This year, they climbed to the top again.”

The three money managers have among the lowest-cost target-date funds.

In 2020, BlackRock, Fidelity and Vanguard captured about $22 billion, $19.8 billion and $19.5 billion in their most popular TDFs, respectively.

The Covid-19 pandemic likely played a big role in the scramble atop the leaderboard, Pacholok said.

“We believe it’s primarily because of the market drawdown in 2020,” she said. “People were a little more hesitant to keep up with their contributions.”

A BlackRock spokesperson declined comment.

“The Freedom Funds were launched in 1996, making Fidelity one of the only…