Filed Under:Life Insurance, Life Planning Strategies

Indexed funds nab two-thirds of CTFs in DC plans

The report pegs passively managed indexed funds at 66 percent of collective trust fund assets in DC Plans.
The report pegs passively managed indexed funds at 66 percent of collective trust fund assets in DC Plans.

Passively managed index funds account for the largest share of collective trust funds in defined contribution plans by far, new research concludes.

Cerulli Associates released this finding in a third-quarter, 2013 report, “The Cerulli Edge: Institutional Edition,” which explores trends respecting collective trust funds (CTFs) and, separately, hedge fund investing.

The report pegs indexed funds at 66 percent of CTF assets in DC Plans. Actively managed funds (excluding stable value funds) garner an additional 23 percent. Stable value funds account for another 10 percent of CTF assets, the balance (one percent), going to a mix of other funds.

“Indexed collective trust fund assets dominate the CTF profile in defined contribution plans as the retiring population seeks capital preservation,” the report states. “Although stable value strategies are designed to maintain capital, given their low yields, they are losing support.

“The inherently low fees of CTFs piggy-backed on a passive strategy are a win-win for the scarred Baby Boomer who is repeatedly bombarded by daily examples of management fees eating into absolute returns,” the report adds. “Fortunately for asset managers, CTFs have yet to penetrate the mainstream investor’s vernacular, leaving plenty of room to increase educational awareness of the benefits of wrapping a strategy in a CTF.”

Nearly two-thirds (64 percent) of asset managers surveyed by Cerulli have new CTF strategies in development. An additional 36 percent are working with existing CTF strategies.

The report observes, however, that asset managers do not plan to incorporate CTFs into new target-date strategies; only 13 percent of existing strategies will incorporate a target-date strategy.

“For the near-term, survey participants believe bringing a new [CTF] strategy to market will meet investor needs better than revamping established in-house capabilities,” the report observes.

As the addressable market for CTFs expands further into the DC market, standardization of share classes and fees, according to 58 percent of respondents, will be the norm. 

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