BlackRock takes aim at Vanguard, Fidelity with indexed target date funds

BlackRock Inc. may be touting its new indexed target date series, but it will face some tough competition from established players in the market. The fund family today kicked off marketing efforts for its menu of indexed mutual funds for 401(k) plans. Back in June, BlackRock launched its series of LifePath Index Portfolios. The fund family followed that move in late July with modifications to its existing LifePath portfolios, adding four active strategies to its well-known target date fund series. “We wanted to bring the indexed offerings and LifePath into the small-plan market and give advisers, platforms and participants a choice in their indexed provider,” said Chip Castille, managing director and head of BlackRock's U.S. and Canada defined-contribution group. He noted that while some platforms might be ready to bring indexed strategies through exchange-traded funds, others may not be prepared and would be more receptive to indexed mutual funds. Though BlackRock currently uses indexed strategies in its collective trust funds, the company's management believes advisers in the small- to midsize-plan markets might be more interested in bringing those strategies to their plans. The focus on low cost and fee transparency in light of upcoming Labor Department fee disclosure rules will put indexed funds in the spotlight. Further, indexed options might seem more attractive amid a flat to declining market, said Lynette DeWitt, director of research, subadvisory and lifecycle funds at Financial Research Corp. “If there's no performance to be had, then you want a low-fee cost structure,” she said. “You don't want to pay more than you have to for losses.” Currently, mutual fund giants The Vanguard Group Inc. and Fidelity Investments are among the best-known target-date-indexed-fund players. The two offer low fees and record keeping platforms. Indeed, Vanguard's expense ratios range between 0.16% and 0.19%, and Fidelity's Freedom Index Funds are capped at 0.19%. Net expense ratios for LifePath's indexed series are higher, ranging between 0.19% and 0.26%. Another selling point for Vanguard and Fidelity is their record keeping capabilities. BlackRock, on the other hand, is a defined-contribution investment-only player. That could be a problem for the asset manager. “The question is, how do you deal with these very large record keepers and fund families that have major stakes in the marketplace?” asked Geoff Bobroff, president of Bobroff Consulting Inc. “It's going to be somewhat of an uphill battle.” Mr. Castille insisted that BlackRock's status as an investment-only provider – that is, a provider that doesn't have a record-keeping business – is actually an advantage. “It means we can work in a variety of circumstances and be flexible in how we market our offering together with our distribution partners,” he said. “There are two sides to the story of being a DCIO.”