When the Combat Fader option is enabled on the Player frame it does not fade/unfade when the player targets/untargets units.

Quick investigation reveals that the cause seems to be that the Update method of the SimpleFader oUF plugin does the following for the target check to decide whether to fade:
( unit == "player" and self:GetParent() == UIParent and UnitExists("target") )

However as of current build when called on the player unit frame, self:GetParent() appears to return LunaUnitFrames_PetBattleFrameHider rather than UIParent and as such the check never passes.