From the January 2009 issue of Research Magazine • Subscribe!

January 1, 2009

Retirement ETFs Debut

One of the biggest hits with investors over the past 10 years has been target-dated retirement portfolios. While mutual funds were the first to lead in this area, ETFs are now following their path.

In November, Barclays Global Investors (BGI) launched a series of target-dated ETFs, a series of risk-based ETFs and fixed-income bond ETFs.

"The new iShares target-date funds are well-suited to IRA rollovers or small-sized 401(k) plans who want to offer their participants an option that combines certain benefits of ETFs such as transparency with the benefits of target funds, which help mitigate common investor pitfalls such as poor asset allocation and failure to make portfolio changes over time," says Noel Archard, Head of U.S. iShares Product Research and Development at BGI.

The iShares suite of target-date and risk-based ETFs follow a "fund of funds" or ETF of ETFs solution and as such consist exclusively of iShares ETFs. Unlike the PowerShares suite of ETFs made of ETFs, the iShares expense ratio includes the fees of the component ETFs, while PowerShares charges 0.25 percent in addition to the component ETFs' expense ratio.

Target-date funds automatically adjust the ratio between equities and fixed-income as you get closer to your retirement date (target date). Target-date funds appeal to 401(k) owners who prefer to leave the research and allocation models up to fund managers.

In the mutual fund segment, target-date funds (also called life-cycle or age-based funds) have been wildly popular, accounting for $184 billion in assets as of the end of 2007. Target-date funds have been dubbed a retirement plan on autopilot.

TD Ameritrade, in cooperation with XShares Advisors, was the first to introduce target-dated ETFs. The set of six TDX Independence ETFs account for $150 million in assets. Unlike the new iShares ETFs, the TDX series of target-date ETFs consists of individual stocks and bonds.

The new suite of iShares ETFs also includes four risk-based and two bond ETFs.

The new target-date iShares are:

o iShares S&P Target Date Retirement Income Fund (TGR) -- expense ratio: 0.31 percent

o iShares S&P Target Date 2010 Index Fund (TZD) -- expense ratio: 0.31 percent

o iShares S&P Target Date 2015 Index Fund (TZE) -- expense ratio: 0.31 percent

o iShares S&P Target Date 2020 Index Fund (TZG) -- expense ratio: 0.31 percent

o iShares S&P Target Date 2025 Index Fund (TZI) -- expense ratio: 0.30 percent

o iShares S&P Target Date 2030 Index Fund (TZL) -- expense ratio: 0.30 percent

o iShares S&P Target Date 2035 Index Fund (TZO) -- expense ratio: 0.30 percent

o iShares S&P Target Date 2040 Index Fund (TZV) -- expense ratio: 0.29 percent

The new risk-based iShares are:

o iShares S&P Conservative Allocation Fund (AOK) -- expense ratio: 0.31 percent

o iShares S&P Moderate Allocation Fund (AOM) -- expense ratio: 0.32 percent

o iShares S&P Growth Allocation Fund (AOR) -- expense ratio: 0.33 percent

o iShares S&P Aggressive Allocation Fund (AOA) -- expense ratio: 0.34 percent o

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Ron DeLegge is the San Diego-based editor of www.etfguide.com.

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