Last year, members of U.S.-based DC plans continued to rely on target-date funds (TDFs) to determine their asset mix, while the plan members who selected their own allocations continued to favour U.S. equities.
These are the findings of Northern Trust’s third annual DC Tracker.
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In 2014, TDFs, which automatically rebalance a participant’s asset mix and invest more conservatively as he/she nears retirement age, attracted almost 33% of asset flows in American DC plans tracked by Northern Trust.
As a result of those flows, TDFs make up 22% of all assets by market value in the 2015 DC Tracker, up from 15.7% the previous year.
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Among core investment options, U.S. equities were the favourite asset class, attracting 19% of net flows based on participant investment elections in the DC Tracker universe. (In comparison, international equities drew 12.3%, while fixed income attracted 16.7%.)
As a result, U.S. equity remains the largest single investment category in the DC Tracker, with 33.6% of all assets by market value.
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“The dominance of U.S. equities in DC portfolios is the result of two related factors—a tendency among U.S. participants to invest in what they know, and DC plans that offer more U.S. equity funds than international funds,” says Jim Danaher, managing director, DC Solutions at Northern Trust.
“The risks of home-country bias include overconcentration in a single market and missed exposure to a wider set of opportunities,” he adds.
Northern Trust’s DC Tracker examined 100 pension plans, representing $265 billion in assets as of December 31, 2014.