(Bloomberg) -- BlackRock Inc. is taking another shot at a strategy long-dominated by mutual funds, target-date investing, but with an exchange-traded fund-twist.
Last week, the world’s largest ETF issuer unveiled a suite of 10 funds that shift money into more conservative investments as holders age. The new line-up will target retirement dates every five years from 2025 through 2065. While target-date mutual funds and collective investment trusts hold roughly $2.8 trillion globally, BlackRock’s new funds are the only such strategy available in the ETF wrapper.
The new ETFs set sail roughly a decade after the asset management-titan shuttered its passively-managed target-date ETFs in 2014. Steep competition from mutual fund products tamped down other rivals, DWS Group also closed its lineup of target-date ETFs in 2015, and has yet to revamp the effort. With ETFs now a $7 trillion space and the mutual fund industry bleeding cash, BlackRock is ready to try again.
“Since 2014 you’ve seen a major advancement in the usage of ETFs, particularly in the individual market environment,” said Nick Nefouse, head of retirement solutions at BlackRock, on Bloomberg Television’s ETF IQ. “When we think about this for 401(k) users, most of them wouldn’t use this type of product, this is really for the individual investor.”
The idea behind launching the strategy in an ETF is to capture investors outside of company-sponsored retirement plans. Those plans are typically used with pre-tax dollars and don’t require the tax efficiency of an exchange-traded fund.
“Since iShares and DWS shuttered their earlier TDF ETF ranges you’ve seen ETFs’ ‘brand’ expand further into the retail market, commissions have been zeroed out, and digital access to markets via a variety of platforms is now ubiquitous,” said Ben Johnson, head of client solutions at Morningstar Inc. “I think BlackRock sees an opportunity to get closer to more investors than may have been willing and able to invest in these products even 10 years ago.”
Deborah Fuhr, co-founder of ETFGI, says BlackRock’s second time around will likely be more successful than its initial try.
“Many investors, including regulators, are looking at target date strategies. Park it and leave it - rather than using or changing risk profiled exposure,” she said. “Investors and the investment landscape has changed a lot in the past nine to 10 years.”