Behind the Curtain: Analysis of TDFs’ Holdings and the Performance of Their Underlying Funds

As a fund-of-funds, Target Date Fund (TDFs) portfolios consist of other funds. Using 18,229 unique mutual funds and ETFs from 2011 to 2022, we analyze the performance of funds included in TDFs. We find TDFs lack skill, in general, in selecting underlying funds. Managers only outperform in selecting domestic income funds, while index domestic equity and other asset classes underperform. Increased popularity within TDF portfolios relates to lower underlying fund performance. These results suggest TDFs are unable to select outperforming investments, in general, likely due to either lack of skill and/or agency problems arising from lack of investor monitoring.