BlackRock's exchange-traded funds division, iShares, is shutting down its entire lineup of target-date ETFs next month.
When BlackRock leaves the target-date ETF business, just one investment manager providing such funds will be left
The funds' failure is particularly glaring because ETFs are among the most successful investment products today and target-date mutual funds are also seeing fast growth. Analysts have said inertia in the retirement marketplace has prevented those successes from being combined.
“The failure of target-date ETFs isn't one of concept, it's one of delivery vehicle,” Paul Britt, an analyst for research firm ETF.com, said in a recent article. “Many individual retirement accounts and 401(k) retirement plans simply don't offer or can't support ETFs of any kind, whether target date or the plain-old S&P 500 funds.”
“For ETFs to really grow in retirement plans, ETFs need to be offered more commonly in retirement plans,” said Christine Hudacko, a spokeswoman for BlackRock.
The iShares target date ETF closures come even as target date funds in mutual fund formats add assets.
In all, target date funds brought in $50.8 billion in new assets in 2013, and total assets held in the funds reached more than $650 billion by the end of March, Morningstar Inc. said. Excluding market appreciation, that's a growth rate of about 10.5%.
But that growth has accrued in large part to the benefit of three fund firms — Fidelity Investments, the Vanguard Group Inc. and T. Rowe Price Group Inc. — which often act both as fund managers and record keepers.
That gives those firms special advantage in attracting assets to their own funds, and to mutual funds in general, according to John Jacobs, executive vice president of Nasdaq OMX Group Inc. who currently oversees index design.
“These platforms were all set up by mutual fund companies,” said Mr. Jacobs. “How fast do you want to eat your own lunch?”
The closures of the iShares fund series, which was launched in 2008, amount to a rare retreat for that brand. The firm has launched more than 300 ETFs in the U.S. since 1996 and closed just 17, according to data from Morningstar.
Last month's announcement will add 18 funds to that list.
iShares — now owned by BlackRock, the world's largest money manager — had a key role in popularizing exchange-traded funds across asset classes.
The target date series managed nearly $310 million when their closure was announced last month. None topped the $100 million normally thought to be the break-even point for exchange-traded funds. And they pale in comparison to BlackRock's LifePath mutual fund target date series, which manages nearly $13.8 billion.
The sole remaining lineup of target date ETFs — Deutsche X-trackers — manages just $122 million, according to ETF.com.