S&P Dow Jones Indices, a leading provider of financial market indices, has launched a series of target date indices.
The S&P Target Date Style Index Series is designed to help defined contribution plan sponsors screen, select and monitor target date funds.
The S&P Target Date Style Index Series is designed to help defined contribution plan sponsors screen, select and monitor target date funds by providing separate performance comparisons for “to” versus “through” glide paths.
Glide path refers to the tendency of a target date fund’s asset allocation to become more conservative as the fund’s target date approaches.
The S&P Target Date Style Index Series comprises a set of multi-asset class indices, each corresponding to a different target retirement date.
Each index is fully investable, with varying levels of exposure to the asset classes determined during an annual survey process. These new indices classify funds, according to their asset allocation and glide paths, into two sub-groups.
“To” funds have relatively conservative glide paths and aim to emphasise market risk sensitivity around the retirement date; while “Through” funds are relatively more aggressive and aim to be more sensitive to longevity risk at, and beyond, the retirement date.
For defined contribution plans that wish to incorporate more sensitivity to market risk, sponsors may screen for target date funds pursuing a “to” style, and evaluate those funds relative to an S&P Target Date To Index.
Conversely, sponsors may screen for target date funds pursuing a “through” style if it is more appropriate for their plans to be more sensitive to longevity risk, and can compare such funds to an S&P Target Date Through Index.
Craig Lazzara, Senior Director at S&P Dow Jones Indices said: “As defined contribution plans become increasingly important, we are excited to augment our S&P Target Date Indices lineup to help sponsors take into account both market and longevity risk sensitivity in their fund evaluation process.”
Based on the S&P Target Date Index’ methodology, the asset allocation for the S&P Target Date Style Indices reflects consensus position derived from an annual survey of target date funds’ holdings.
The current universe of eligible asset classes includes: US Large-Cap, US Mid-Cap, US Small-Cap, International Equities, Emerging Markets, US REITs, Core Fixed Income, Cash Equivalents, TIPS and High-Yield Corporate Bonds. Each asset class is represented in the indices via a different ETF.
For investors looking to invest in a target-date fund, a number of US-based ETF providers offer products tracking a range of target date indices. These include: iShares, benchmarked to S&P indices; db-X, benchmarked to Zacks Lifecycle indices; and Guggenhiem, benchmarked to BullerShares indices.