In a further sign of the difficulties that ETFs are having trying to crack the 401(k) market, BlackRock’s iShares division is shutting down its exchange-traded TDF. The fund had attracted only $308 million since 2008, some of which was seed money from the firm.
Though ETFs are one of the most successful investment products for individual investors, they have logistical issues as a delivery mechanism within DC plans. On the other hand, ETFs are popular building blocks within asset allocation products — using collective trusts, for example, as well as garnering growing interest within brokerage accounts.
Though BlackRock is strong and growing in the TDF market, such a retreat by the leader in ETFs is a rare event — only 16 of the approximately 300 ETFs launched by iShares since 1996 had been closed, which is very telling. Though some providers have been able to overcome the trading issues to allow for ETFs within DC plans — like Ascensus and Matrix, for example — there has not been enough consumer demand to overcome the costs. On the other hand, Schwab is making a big bet with its all-ETF 401(k) program, using proprietary technology to deliver the real value and efficiencies of ETFs. It’s too early to make any judgments about the success of the Schwab program — and, evidently, too late for BlackRock to continue investing in theirs.
