The strategy can be accessed through an off-the-shelf offering, with ETF weightings that correspond to the median asset allocation of large institutional funds, relying on data from major surveys, such as Pensions & Investments' survey of the Top 1,000 U.S. retirement plans.
For example, P&I's latest survey shows that corporate defined benefit plans among the largest 200 funds have an average 36.8% of their assets in domestic fixed income, 21.2% in domestic stock, 15% in international equities, 7.8% in private equity, 4.1% in alternatives, 4% apiece in global equity and real estate, 3.4% in “other” investments, 2.1% in non-U.S. fixed income and 1.6% in cash.
Crafting an allocation of ETFs that mirrors those weightings solves the dilemma facing clients, allowing them to expand the liquid portion of their portfolios without handicapping investment returns as they fight to close funding shortfalls, Ms. Tennican said in an interview.
Institutional investors looking to achieve that balance “can also use futures and swaps, but doing so can be cumbersome and impractical to implement for some plans,” Ms. Tennican said. “By contrast, BlackRock's new strategy is easy to access, she said.
Ms. Tennican declined to specify how the BlackRock strategy uses ETFs to mirror less liquid segments of the investment universe, such as private equity. “There isn't an iShares ETF that maps to every single asset class,” but there are proxies available to achieve that median asset class exposure, she noted, while declining to reveal the strategy's “secret sauce.”
In addition to BlackRock's off-the-shelf offering, “we expect to be able to tailor” the strategy for larger plans' specific asset allocations, Ms. Tennican said.