Defined contribution retirement plans are seeing a steady transition away from mutual funds in favor of collective investment trusts, according to a recent report.
At the end of 2018, CITs — which are bank products that tend to have lower fees than those associated with mutual funds — made up 28% of defined contribution plan assets while mutual funds represented 45%, according to data from Sway Research cited by FA-IQ sister publication Ignites. CITs now make up close to 34% of plan assets while mutual funds’ share has dropped to around 40%, according to Sway.
“If CIT usage continues to surge, Sway expects these products will overtake mutual funds in DCIO asset share by the end of 2025,” the report notes.
In addition, the defined contribution plan space continues seeing far faster growth in passively managed products: such strategies made up 38% of defined contribution plan assets in 2016 but 46% this year, the publication writes, citing Sway.
At Fidelity — the fourth-fastest growing provider of retirement products — only 42% of the assets in products distributed through defined contribution plans are in active products, Sway found.
Assets in passive strategies have clocked 16% annual growth over the past four years, the publication writes, citing the report. Assets in active products, by comparison, grew at a rate of 6.7% during that time, according to Sway.
Target-date strategies have also been behind 15% or more of defined contribution plan gross sales at eight of the firms surveyed by Sway, the publication writes.
The report also found that there’s substantial hype surrounding environmental, social and governance investments but little interest on the part of plan sponsors, according to Ignites.
Sway said that close to 77% of defined contribution plan sales leaders believe that “media coverage of ESG in DC far outstrips the actual opportunity to capture DCIO assets via ESG products,” according to the publication.
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