BlackRock tries again at target-date ETFs

BlackRock is the only company offering target-date ETFs to investors outside of 401(k)s — but there is a question about whether there is much of a market for that.

It’s been nearly a decade since BlackRock closed a line of iShares target-date ETFs for which it had high hopes.

At the time, the products, like other ETFs, had struggled to win a place in 401(k) plans. They attracted $310 million — an extremely modest figure for the world’s largest asset manager.

But now the company is taking another stab at target-date ETFs, this week launching the only such series in the U.S. With that product line, the iShares LifePath Target Date ETF suite, BlackRock is employing a different tactic. Rather than focusing on 401(k) plans, it’s aiming the ETFs at investors who don’t have employer-sponsored retirement plans.

The new series also differs from the one that closed in 2014, said Todd Rosenbluth, head of research at VettaFi.

“Things are different. ETFs have become more mainstream, and the younger generation of advisors and investors are focused on ETFs more than mutual funds. These ETFs are also actively managed, unlike the prior ones that tracked an index and did not take advantage of BlackRock’s asset allocation expertise,” Rosenbluth said in an email. “These are low-cost, broadly diversified ETFs and can help those without a 401(k) option or those that have maxed out their contributions but want to save more in a low-cost manner.”

Another firm that dabbled in target-date ETFs, Deutsche, folded its line of X-trackers target dates in 2015, a year after BlackRock.

This time, BlackRock has no competitors, at least not yet. The new series includes funds in vintages from 2025 to 2065, and fees range from 8 basis points to 12 bps.

That’s similar to the fee range for the lowest-cost share class of BlackRock’s LifePath Index mutual fund series, said Megan Pacholok, senior manager research analyst at Morningstar.

“The goal here is looking outside of your traditional workplace plan or 401(k) and giving it to individuals who might want a target-date fund in their brokerage account,” Pacholok said. “Whether there is a big appetite for that — that is the big question … that no one has sought to answer.”

Target-date funds are big business. As of the end of 2022, assets in U.S. target-date mutual funds and collective investment trusts totaled about $2.82 trillion, according to data from Morningstar’s Target-Date Strategy Landscape report. Five asset managers control about 80% of the market, and the biggest players — Vanguard, Fidelity and T. Rowe Price — have retirement plan record-keeping businesses.

Record keeping has been the challenge for ETFs, as companies generally don’t allow them in their systems due to intraday trading issues, Pacholok said.

Even if they did, the lowest-cost share classes of some index-based target-date mutual funds and CITs are in the single digits — so ETFs would have a hard time competing on fees alone.

But there are undoubtedly some investors who would want the set-it-and-forget-it convenience of a target-date fund in their brokerage accounts.

“Though target date funds may not be the most suitable investment portfolio for any individual investor because of their generalized investment strategy, they offer an easy and low-cost solution for those who do not have the expertise or time to construct and rebalance their own investment portfolios,” Kristy Jaiyi Xu, founder of Global Wealth Harbor, said in an email. “Of course, not only investors with 401(k) plans need a solution for those problems, so do the investors who do not have 401(k) plans.”

Given the wide range of investments available in individual retirement accounts, a target-date ETF option will be welcomed by a subset of investors, she said.

While there are no other target-date ETFs out there in the U.S., asset managers will be watching how well BlackRock’s strategy goes, Pacholok said. “I wouldn’t be surprised if no one joins them for a while.”