Target date funds tipped to grow

With the value of so-called ‘target date funds’ claimed to have grown by over 50 per cent in the US over the past four years, Russell Investment Group is predicting such arrangements are likely to grow in popularity in Australia.

Russell managing director of retirement services in Australia Heather Dawson pointed to US research showing US assets in lifestyle funds now exceeding $US100 billion, with net clash flows running at about $US24 million a year.

And she said with the majority of assets in employer-financed defined contribution superannuation funds in Australia being invested in default or balanced options, there was significant potential for growth in target date funds.

Target date funds traditionally invest in a mixture of growth and income assets, with the asset allocation altered automatically as people approach retirement.

“Even a 10 per cent share of the Australian diversified fund market — quite feasible when compared to the 60 per cent in the US — would represent over $30 billion in assets,” Dawson said.

“We believe the phenomenal growth in US target date funds is likely to be replicated in Australia as superannuation funds and master trusts respond to individuals’ actual investment behaviour in the new choice environment.”