“In a traditional fund, on the other hand, a three-year ETF would continue to purchase similar assets as more cash flows in, so the average life of its holdings continues to be three years. An investor wanting to cash out $10,000 in 2015 might find interest rates have climbed since then, and because rising interest rates cause fixed-income assets to drop in price, the value of the fund would have declined,” McGee wrote.
There are still a lot of investors in the market that have not taken advantage of the lower cost-ETF target date option. About three-quarters of all target date assets are managed, according to Morningstar data.
As investor demand is growing rapidly for target date ETFs, providers are quick to answer it. Last year, the BlackRock LifePath Index series and Lincoln Financial Group’s Presidential Protected Profiles debuted.
ETFs will continue to be an important tool in the target date sector because of the competition. Low-cost funds with the desired level of diversification and risk are key ingredients that providers are working into their offerings.
Target-date ETFs include:
- iShares S&P Target Date 2015 Index Fund ETF (NYSEArca: TZE)
- iShares S&P Target Date 2050 Index Fund ETF (NYSEArca: TZY)
- iShares S&P Target Date 2020 Index Fund ETF (NYSEArca: TZG)
- db-X 2020 Target Date ETF (NYSEArca: TDH)
- db-X 2030 Target Date ETF (NYSEArca: TDN)
Tisha Guerrero contributed to this article.