May 2023 / TARGET DATE SOLUTIONS
How Our Strategic Investing Approach Stacks Up Against Passive Portfolios
Discipline has brought long‑term rewards for clients.
Key Insights
- We studied 11 of our Retirement Funds and found that all of them beat their passive competitors over various rolling periods from inception through December 31, 2022, net of fees.
- We compared the performance of each Retirement Fund with a custom composite index based on the performance of passive funds with comparable target dates.
- The custom composites were based on the oldest share class offered by each competing passive target date fund. The results were equally weighted by fund.
- Excess returns relative to the passive competitor indexes were positive, on average, across the 1‑, 3‑, 5‑, and 10‑year rolling time periods for the funds we examined.1
When selecting a target date fund, defined contribution plan sponsors and individual investors can choose from both passively managed strategies—those that invest in an underlying basket of index funds—and actively managed strategies, which seek to enhance returns through security selection and/or tactical asset allocation moves to exploit potential short‑term market opportunities.
When considering active target date funds, investors may wonder if an active management approach justifies the higher management fees that such funds typically charge relative to their passive competitors.
Value Added by T. Rowe Price’s Target Date Process
(Fig. 1) Average Active Success Rates; Time‑Weighted Average Excess Returns, Net of Fees2 in Percentage Points

Relative to Passive Competitor Indexes, Fund Inceptions Through December 31, 2022
Sources: T. Rowe Price and Morningstar (see Additional Disclosures). All data analysis by T. Rowe Price.
To demonstrate that T. Rowe Price's strategic investing process has created value for our clients, we recently examined the relative performance of 11 of our Retirement Funds (RFs). These 11 RFs held almost 96% of the RF assets managed by the firm as of December 31, 2022. The focus of our study was on performance relative to the passive target date strategies offered by our competitors.3
Study Results
Relative to the passive competitor indexes, the value added by T. Rowe Price's active RFs was both strongly positive and relatively stable across different time frames (Figure 1). Performance for individual RFs also was strongly positive, especially over the longer term (Figures 2 and 3):
- All 10 of the RFs with 10‑year track records included in the study outperformed their passive competitor indexes in 100% of rolling 10‑year periods since inception.
- Eight of the 11 funds in the study outperformed their passive competitor index in 95% or more of rolling five‑year periods since inception.
- All 11 RFs outperformed their passive competitor index in 80% or more of three‑year rolling periods since inception.
- Annualized excess returns relative to the passive competitor indexes were consistently positive, on average, across all time frames for all RFs.
Active Success Rates vs. Equally Weighted Passive Competitor Indexes
(Fig. 2) Fund Inceptions Through December 31, 2022

Sources: T. Rowe Price and Morningstar (see Additional Disclosures). All data analysis by T. Rowe Price.
Excess Returns vs. Equally Weighted Passive Competitor Indexes, Net of Fees
(Fig. 3) Percentage Points, Fund Inceptions Through December 31, 2022

Sources: T. Rowe Price and Morningstar (see Additional Disclosures). All data analysis by T. Rowe Price.
Study Methodology
To represent the passive alternatives to T. Rowe Price's actively managed target date strategies, we used a series of composite performance indexes consisting of passively managed target date funds identified by Morningstar, a leading mutual fund data provider, in its annual Target‑Date Strategy Landscape report. These indexes included passive funds offered by major target date providers, such as The Vanguard Group, Fidelity Investments, BlackRock, Inc., and State Street Corporation.4
The comparison index for each T. Rowe Price RF included the passive funds in the Morningstar universe with the same target date as the RF. The returns on these indexes were based on an equally weighted average of the oldest share class offered by each competing passive fund. The asset weights for all these funds as of December 31, 2022, can be found in Figure A3 in the appendix.
While they are in the same category, there may be material differences among target date funds, including fees, expenses, and the portfolio mix of stocks, bonds, and other assets. Target date funds typically change their asset class allocations over time according to a predetermined glide path. Security selection within the underlying investments that make up those allocations can vary greatly between fund families and may have a material impact on fund performance.
RF relative performance was measured across rolling 1‑, 3‑, 5‑, and 10‑year periods (rolled monthly) from each fund’s inception date through December 31, 2022. Thus, the older the RF, the more rolling performance periods it had in each time frame studied.
Two performance measures were calculated for each RF:
- Active success rate: The percentage of total rolling periods in which the RF outperformed its passive competitor index. A positive success rate for a fund was defined as achieving a higher return than the relevant passive competitor index in more than 50% of all periods included in the study.
- Excess return: The return for each RF relative to its passive competitor index, averaged across all rolling performance periods in a given time frame.
To provide a high‑level summary of the relative effectiveness of T. Rowe Price's target date process, we also calculated performance averages covering the 11 RFs in the study (Figure 1). These averages were time‑weighted based on the percentage of the total rolling performance periods in each time frame provided by each RF.
Retirement Funds Excluded From the Study
Two T. Rowe Price Retirement Funds—the Retirement 2005 Fund and the Retirement 2065 Fund—were excluded from this study. The Retirement 2005 Fund had a limited number of passive peer constituents in the Morningstar universe. The Retirement 2065 Fund incepted on October 13, 2020, and, thus, had an extremely limited performance track record. The Retirement 2060 Fund, which began operations in June 2014, was included in the study but had no 10-year performance periods as of December 31, 2022.
Our Approach to Strategic Investing
T. Rowe Price's target date process seeks to improve outcomes for our target date clients at multiple levels—via glide path design, long‑term diversification, tactical asset allocation, and our strategic investing approach. We believe the value added by our target date implementation can meaningfully enhance retirement outcomes for investors.
Bottom‑up fundamental research is at the core of how we manage the underlying strategies in our target date funds. That means that prior to the coronavirus pandemic, over 550 of our investment professionals went beyond the numbers by visiting senior corporate executives in their offices, touring their companies, and checking reality on the ground with suppliers and customers.5 This enabled them to ask the right questions to get a deeper understanding of where a company stood and where they thought it could go in the future. During the pandemic, these research activities are being done virtually.
Our target date managers, backed by our committee of asset allocation experts from across multi‑asset, equity, and fixed income, seek to get ahead of change by identifying attractive near‑term asset valuations and using prudent tactical allocation adjustments to take advantage of those potential opportunities.
Experience has been a critical component of our success as well. Our skilled portfolio managers have deep experience—an average of 22 years in the industry and 17 years with T. Rowe Price.6 Significantly, many of our analysts go on to become portfolio managers, which we believe creates a strong foundation on behalf of our clients.
Additional Disclosures
©2022 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
The S&P Target Date indexes are products of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”), and have been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). T. Rowe Price's product is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the S&P Target Date indexes.
Important Information
Call 1‑800‑225‑5132 to request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information you should read and consider carefully before investing.
The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire (assumed to be age 65) and likely stop making new investments in the fund. If an investor plans to retire significantly earlier or later than age 65, the funds may not be an appropriate investment even if the investor is retiring on or near the target date. The funds’ allocations among a broad range of underlying T. Rowe Price stock and bond funds will change over time. The funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus on supporting an income stream over a long‑term postretirement withdrawal horizon. The funds are not designed for a lump‑sum redemption at the target date and do not guarantee a particular level of income. The funds maintain a substantial allocation to equities both prior to and after the target date, which can result in greater volatility over shorter time horizons.
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of February 2022 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.
Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.
Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.
T. Rowe Price Investment Services, Inc., distributor, T. Rowe Price mutual funds.
© 2022 T. Rowe Price. All rights reserved. T. Rowe Price, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.