New iShares Target-Date ETFs Try A Different Approach

December 01, 2008

By tapping into active managers' best allocation strategies, these ETFs present a new wrinkle in target-date retirement portfolios.

 

iShares has just issued a dozen new unique ETFs that track the S&P Target Date Index Series and the Target Risk Index Series.

Here is a breakdown of the two categories with the tickers and expense ratios:

 

Target-Date Funds

Ticker

Cost

iShares S&P Target Date Retirement Income Fund

TGR

0.31%

iShares S&P Target Date 2010 Index Fund

TZD

0.31%

iShares S&P Target Date 2015 Index Fund

TZE

0.31%

iShares S&P Target Date 2020 Index Fund

TZG

0.31%

iShares S&P Target Date 2025 Index Fund

TZI

0.30%

iShares S&P Target Date 2030 Index Fund

TZL

0.30%

iShares S&P Target Date 2035 Index Fund

TZO

0.30%

iShares S&P Target Date 2040 Index Fund

TZV

0.29%

Risk-Based Funds

Ticker

Cost

iShares S&P Conservative Allocation Fund

AOK

0.31%

iShares S&P Moderate Allocation Fund

AOM

0.32%

iShares S&P Growth Allocation Fund

AOR

0.33%

iShares S&P Aggressive Allocation Fund

AOA

0.34%

 

Methodology

The S&P Target Date Index Series and Target Risk Index Series are composed entirely of iShares ETFs, similar to a fund of funds. Each underlying ETF is chosen as a broad representation of an asset class. According to Standard and Poor's Target Date Index Series methodology guide:

"The index series reflects the market consensus for asset allocations for different target date horizons. In particular, each index is representative of the investment opportunity available to investors for the corresponding target date horizon, with asset class exposure driven by a survey of available target date funds for that horizon."

This means that it is the two index series' intention to provide a benchmark based on asset allocation opportunities available in the marketplace.

This is different from most indexes that systematically hold the entirety of or a representation of an investable universe, defined by an asset class, style, sector, industry, etc. These indexes instead represent aggregate asset allocations by each index's mutual fund peer group.

To determine the asset-class weights for each target date and target risk index, S&P surveys mutual funds categorized as Target Date funds or Target Risk funds by the Lipper and Morningstar databases. After surveying a category peer group, a trend line is fitted to the data points, only utilizing asset classes with more than 1%. Measures are taken to solve an outlier effect without removing the number of funds used in the survey. The indexes are rebalanced annually using the same surveying method.

The goal of these indexes is to represent allocation decisions among asset classes; not sector, style or individual security selections. To represent an asset-class allocation, iShares ETFs are used. It is very clear that S&P intended and designed the indexes to become ETFs.

It is interesting that S&P chose ETFs as the underlying assets instead of the indexes that those ETFs track. This makes the creation and redemption of the ETFs simpler since hundreds of individual securities are represented by the underlying ETFs.

The expense ratios of the target date and target risk index funds listed above include the expense ratios charged by the underlying ETFs of each fund. The expense ratio fees of the underlying ETFs, which are all iShares products, are discounted when held by the fund.

Listed below are the ETFs S&P can employ for asset allocations that are determined for their Target Date Index and Target Risk Index Series. Each index may or may not contain all these funds depending on their asset class inclusion in each index.

 

Asset Class

ETF

Ticker

US Large Cap

iShares S&P 500 Index Fund

IVV

US Mid Cap

iShares S&P MidCap 400 Index Fund

IJH

US Small Cap

iShares S&P SmallCap 600 Index Fund

IJR

International

iShares MSCI EAFE Index Fund

EFA

Emerging Markets

iShares MSCI Emerging Markets Index Fund

EEM

US REITs

iShares Cohen & Steers Realty Majors Index Fund

ICF

Fixed Income

iShares Lehman Aggregate Bond Fund

AGG

Short Term Treasuries

iShares Lehman Short Treasury

SHV

TIPS

iShares Lehman TIPS Bond Fund

TIP

 

 

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