S&P DJ Rolls Out Target-Date Index Series
July 19, 2012
S&P Dow Jones Indices, the world’s biggest benchmark provider, launched an index series focused on target date investing that’s designed to help plan sponsors in the “defined contribution” retirement market parse asset allocation plans based on either retirement dates or actual life spans of plan participants.
The S&P Target Date Style Index Series will select and monitor target date funds by providing separate performance comparisons for asset allocation plans with risks designed around retirement date vs. those that remain more aggressive to account for income needs long after actual retirement, the indexing company said Thursday in a press release. Each index in the series is fully investible.
Plan sponsors targeting more focus on “to” retirement date can evaluate funds relative to an “S&P Target Date To Index,” while those looking at income needs well beyond—or “through"—retirement can benchmark funds relative to an “S&P Target Market Through Index,” the company said.
Previously, S&P’s target date indexes didn’t tease out the distinct “to” and “through” concepts that distinguish between “market risk” up to retirement dates and “longevity risk” associated with the need for retirees to maintain income long after they are out of the workforce, Craig Lazzara, senior director at S&P Dow Jones Indices, said in a telephone interview.
Lazzara said the decision to break out sub-sets of its previously existing target date indexes reflects the growing market and complexity of target date fund families That trend, in turn, is clearly a function of the still-increasing retiree population as Baby Boomer generation spanning the years from 1946 through 1964 enters into and focuses on retirement.
“The original series didn’t distinguish between ‘to’ and ‘through,’” Lazzara said. “The ability to do that is determined by how many fund families you have to work with, and as target date has become more popular there are more and more families that have target-date product.”
Based on the S&P Target Date Index’ methodology, asset allocation plans for the S&P Target Date Style Indices reflect consensus positions derived from an annual survey of target date funds’ holdings, the company said in the press release.
The current universe of eligible asset classes includes: U.S. large- mid- and small-cap stocks, international equities, emerging markets, U.S. real estate investment trusts (REITs), core fixed income, cash equivalents, Treasury inflation-protected securities (TIPS) and high-yield corporate bonds.
Each asset class is represented in the indices via a different ETF, the indexing company said.
S&P Dow Jones Indices, which includes both the S&P 500 Index and the Dow Jones industrial average under the same ownership umbrella, was formed in a transaction that created an entity 73 percent owned by McGraw-Hill and almost 24.4 percent owned by CME Group.
The remaining 2.6 percent stake of the huge index firm is held by Dow Jones & Co. Inc., the company behind the Wall Street Journal that’s owned by Rupert Murdoch’s Australia-based media company News Corp.
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