ProductsSeptember 12, 2014

BlackRock Pulls the Plug on Several ETFs

BlackRock shuttered several funds in its exchange-traded fund (ETF) line, including 10 target-date ETFs.

Reported by Jill Cornfield

The closings in general won’t have much impact, according to Rusty Vanneman, chief investment officer of CLS Investments in Omaha, Nebraska, because in the defined contribution (DC) world, ETFs have not had a lot of traction. “Over mutual funds, in aggregate, they have lower costs,” Vanneman tells PLANADVISER, and this notable cost advantage might persist, especially as new smart or strategic beta ETFs come to market.

“These smart beta ETFs are eating mutual funds for lunch,” Vanneman says. “They’re taking active management in a rules-based format and putting them in a portfolio at a very attractive cost.”

One issue that could be preventing greater use of ETFs in DC plans is their tradability, Vanneman says. It can be complex and challenging to trade ETFs effectively, he says, adding that Schwab’s launch of a full-service 401(k) program based on ETFs will be interesting. “It could be a game changer, to see them in the DC world in a much bigger size. I’m enthusiastic about the possibility of ETFs in DC plans.”

Vanneman calls the BlackRock news disappointing, even though at only about $300 million the asset flows were very low in the target-date series. “BlackRock does some cool work, so it’s mildly surprising, but I get it,” he says.

In Vanneman’s opinion, the big three in the target-date fund (TDF) marketplace are T. Rowe Price, Vanguard and Fidelity. Because of this expertise, he expects they will eventually have target-date ETFs. “That said, I think the one who will crack this nut is Schwab,” he says. “They’re not one of the big three, but they are leading the charge on figuring out how to put ETFs in DC plans. Just a guess, though.”

Trading in the following iShares ETFs will halt at the end of business on October 14:

MSCI Far East Financials (FEFN)
MSCI Emerging Markets Financials (EMFN)
MSCI Emerging Markets Materials (EMMT)
Retail Real Estate Capped (RTL)
Industrial/Office Real Estate Capped (FNIO)
Global Nuclear Energy (NUCL)
NYSE 100 (NY)
NYSE Composite (NYC)

Trading in the following iShares target-date ETFs will also end at the close of business on October 14:

Target Date 2010 ETF (TZD)
Target Date 2015 ETF (TZE)
Target Date 2020 ETF (TZG)
Target Date 2025 ETF (TZI)
Target Date 2030 ETF (TZL
Target Date 2035 ETF (TZO)
Target Date 2040 ETF (TZV)
Target Date 2045 ETF (TZW)
Target Date 2050 ETF (TZY)
Target Date Retirement Income ETF (TGR)