BlackRock Eyes Retirement Market With Target Date ETFs

BlackRock Inc., the world’s biggest ETF issuer, is attempting to expand into the mutual fund-dominated retirement industry with target dated exchange-traded funds designed to attract investors without access to traditional retirement saving tools.  

The active funds, with target dates that range from 2025 to 2065, were unveiled Wednesday as part of the iShares LifePath suite. The funds invest in underlying BlackRock ETFs, and the ratio of holdings in stocks and bonds shifts as the investor moves closer to retirement age, from riskier to conservative. At their allotted date, the funds transition into the iShares Target Retirement ETF.  

BlackRock, whose iShares unit manages $2.33 trillion in 424 ETFs, has a collection of LifePath mutual funds with similar underlying holdings to the ETFs.

Mutual funds have historically dominated the retirement planning industry, since ETFs aren’t included in workplace matched 401(k) plans. These have been the most common and effective way many Americans in the private sector save for retirement. But the ETFs are aimed at the roughly half of Americans without access to retirement saving tools such as an employer-sponsored 401(k) plan, according to BlackRock.  

Whether a set of ETFs can meaningfully address the retirement crisis, let alone capture the attention of retail investors, is an open question. BlackRock launched a set of retirement-focused target date ETFs in 2008, but subsequently closed them in 2014 due to weak investor interest. Yet the firm argues that social media has shifted the landscape for retail investors, while the ETF wrapper itself has evolved in the past decade.  

“This rise of the end investor looking for access to financial markets is one of the other reasons the ‘why now’ is more prevalent, and fractional shares are also creating accessibility for these individuals even below [age] 25 to get started,” said Monique Le, Head of iShares Digital Wealth and Individual Investor Business. “You’re seeing a lot of brokerages like RobinHood launch, and IRA plans to start enticing people to start saving even more beyond the 401(k).” 

BlackRock Retirement ETFs

Yet convincing retail investors to use ETFs like retirement accounts is complicated. Many young people trade stocks in a fashion akin to gambling, not necessarily as a long-term strategy. That’s according to Teresa Ghilarducci, Professor of Economics at the New School, who noted as such at the firm’s media roundtable. For many, retirement savings is the first pool they dip into when hit with a surprise life expense.  

The firm acknowledged that the ETFs themselves can’t address the widespread lack of retirement savings education. But they can provide a good wrapper for the right retail investor.  

“If you look at what has worked in defined contribution plans, it's been the auto enrollment, the auto escalation, and that's where it seems stickiness comes in,” said Nick Nefouse, Global Head of Retirement Solutions at BlackRock. “But the half of people who don't even have access to a plan now at least get a vehicle.”  

Contact Lucy Brewster at [email protected].