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Thursday, July 26, 2012

Target Date Funds Are Turning to ETFs

News summary by MFWire's editors

Reuters reports that Franklin Templeton, Manning and Napier and Lincoln Financial, are some of the target date fund providers, that have increased their offerings' exposure to ETFs, saying it will help them manage the volatile markets and give them access to lower cost niche investment strategies compared to mutual funds.

Target date funds are the most popular 401(k) investment option, yet historically they have rarely incorporated ETFs.

ETF-only target date funds were introduced by Manning & Napier, as well as by Lincoln Financial in the past months, and Franklin Templeton is planning to increase the exposure of its funds to ETFs.

Paul Justice, Morningstar ETF analyst, said that "ETFs ... are low-cost ways of accessing certain areas of the market."

But this trend is still emerging, the report said. This is because Fidelity, T. Rowe Price and Vanguard, three largest providers of target date funds, still do not expose their funds in ETFs.

An emailed statement from a Fidelity spokeswoman said the Fidelity Freedom Fund does not have ETF exposure at the moment but might consider it in the future. "By prospectus the underlying funds have the possibility of investing in ETFs," she wrote. 

Edited by: HFD

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