Summary
- The S&P Target Date® Scorecard provides performance comparisons and analytics covering the U.S. target date fund (TDF) universe.
- The S&P Target Date Index Series is a consensus-driven, multi-asset benchmark for TDFs. It is designed to be an accurate representation of TDFs in the U.S. market and to be the basis against which managers can assess their performance.
- The series is constructed from indices that represent the actual allocations of funds in the U.S. target date space.
- The assets used in the construction of the index series are all investable, and the weights are published in advance of the index series’ rebalancing.
- S&P Dow Jones Indices also produces S&P Target Date Style Indices. The “To” style indices aim to reduce the impact of market drawdowns around the expected retirement date, while the “Through” style indices aim to mitigate longevity risk—the risk of outliving one’s assets in retirement.
- The series consists of 13 S&P Target Date Indices, 11 S&P Target Date “To” Indices and 12 S&P Target Date “Through” Indices. New index vintages are launched in five-year intervals.
Market Commentary
The first half of 2023 was a kinder environment to investors after the sizable selloff across asset classes in 2022. Economic indicators remained mixed, but the long-dreaded recession did not arrive. Jobless claims began to creep up toward the end of Q2 2023, providing a glimmer of hope that the Fed’s rate hikes might soon be in the rearview mirror. However, inflation remained sticky, and in June the Fed signaled two potential additional rate hikes for 2023. Regardless, bond markets were generally positive. On the equity side, the Magnificent Seven propped up the S&P 500®, with the rest of the market being broadly flat.
- The first six months of 2023 saw a rebound in the U.S. equity markets, with the S&P 500 TR posting 16.89%. Although the Federal Reserve increased its target rate three times between February and May, each increase was only 25 bps. This break from 50 and 75 bps hikes in 2022 somewhat calmed investor sentiment.
- Large-cap equities outperformed mid- and small-cap equities, with the S&P MidCap 400® TR and S&P SmallCap 600® TR posting 8.84% and 6.03%, respectively.
- International equities also posted strong returns in the first half of 2023, with developed equities outperforming emerging. The S&P Developed Ex-U.S. BMI (USD) NTR posted 10.63% while the S&P Emerging BMI (USD) NTR posted 4.44%.
- S. REITs, which had the worst performance of all asset classes in the S&P Target Date Index Series 2022, rebounded in 2023. The Dow Jones U.S. Select REIT Index TR posted 5.77% in H1 2023. International REITs did not experience the same fortune, with the S&P Developed Ex-U.S. REIT NTR posting -3.80%. However, none of the S&P Target Date Index vintages had exposure to international REITs and, therefore, they were not affected by the negative returns of this asset class.
- Fixed Income generally performed well across the board, regardless of maturity. The S&P U.S. Treasury Bond 0-1 Year Index posted 2.12%, the S&P U.S. TIPS Index posted 2.29% and the S&P U.S. Aggregate Bond Index posted 2.33%.
- High yield debt fared the best, with the S&P 500 High Yield Corporate Bond Index posting 4.19% over the same period.
- Commodities posted the worst returns, down 7.54% in the first half of 2023 as measured by the S&P GSCI As was the case with international REITs, no S&P Target Date Index vintages had exposure to commodities so they were not impacted.
- Due to a more conservative approach to portfolio construction, nearer-dated vintages of S&P Target Date Indices had lower allocations to equity, which was the best-performing asset class in H1 2023. This resulted in lower returns compared to longer-dated vintages, which had higher allocations to equity.
- With increased exposure to equity came increased risk, which is the reason for the higher annualized volatility figure for longer-dated vintages.
