Target-Date ETFs Keep It Simple

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Includes: AOA, AOM, AOR, TDD, TDX
by: Tom Lydon

Some actively-managed ETFs and target-date funds have not been immune to the market turbulence and have felt the same wrath as other securities in this crazy market.

These investment tools have become a primary investment vehicle for retirement savings and are expected to reach $276 billion and $1.1 trillion in assets, by 2009 and 2013, respectively. A main characteristic of these funds is that they are managed by firms that use proprietary funds. In fact, 85% of all target-date assets are held by Fidelity, T. Rowe Price, Vanguard, and Principal, all providers that use only proprietary funds as underlying investments, states Mariana Lehmann of Ignites.

Although the manner in which these funds are managed appears to be monotone, change seems to be in their near future. Russell Investments is banking on its overall approach to building portfolios to influence the deferred contribution market by offering a “full-service” to advisors and plan sponsors.

Ridgeworth Investments has decided to liquidate its Life Vision Target-Date fund on Feb. 27, 2009, and focus its efforts on participating in the target-date fund marketplace by its funds multi-manager target-date fund providers. Lastly, Target-date funds which offer best-of-breed funds are starting to evolve and slowly eat away at the target-date funds using proprietary underlying funds.

Among target-date ETFs in the marketplace now are:

  • TDX Independence In-Target (NYSEARCA:TDX)
  • TDX Independence 2010 (NYSEARCA:TDD)
  • iShares S&P Moderate Allocation Fund (NYSEARCA:AOM)
  • iShares S&P Growth Allocation Fund (NYSEARCA:AOR)
  • iShares S&P Aggressive Allocation Fund (NYSEARCA:AOA)

The TDX funds are not structured as funds of funds like other target-date products on the market, and are instead based on proprietary indexes from Zacks Investment Research. The iShares target-date funds aren’t structured as funds of funds, either, although some of iShares ETFs are components.