One by one, the rollout of new exchange-traded funds has begun to challenge mutual fund providers for investor asset share. U.S.-listed ETF assets topped $900 billion for the first time in September 2010.
When it comes to the world of retirement investing, however, ETFs have yet to find their footing. BlackRock’s iShares unit, which dominates the ETF industry with a 47.5% share of the market, has made a push into the 401(k) world, gathering about $2 billion in assets according to a January 2010 Wall Street Journal report. Other firms are still mostly standing outside the castle walls looking in.
One idea ETF sponsors have had to gather more retirement assets was to launch their own set of target-date ETFs. Target-date mutual fund assets have soared since they were approved by the Department of Labor as a Qualified Default Investment Alternative (QDIA) for 401(k) investors in 2007. Two ETF sponsors, iShares and TD Ameritrade/XShares, now offer target-date ETFs, but acceptance by investors has been tepid.
The Issues of Target-Date ETFs
ETFs from these sponsors have a number of similarities and differences worth noting. The TD Ameritrade funds own assets directly and have a higher expense ratio, while the iShares ETFs are funds of funds. Both currently start at 2010 and stop at 2040, and have ETFs for current retirees. iShares offers ETFs at five-year intervals while TD’s ETFs are spaced at 10-year intervals.