Standard & Poor's has launched an index series designed to track the fast-growing target date fund market.

Within the open-end mutual fund arena, target date funds have become huge asset gatherers as more investors participate in retirement plans at work. The attractiveness of offering a prepackaged investment plan pegged to an individual's retirement age has allowed assets in these asset allocation funds to balloon in a relatively short period of time.

Even in the ETF space, target date funds are beginning to be registered and launched, though their success is yet to be proven, and only one family is even out in the market currently.

S&P is stepping into the target date arena, though it is not the first index provider to do so, to exploit the need in the marketplace for more transparency and performance benchmarking. Dow Jones and a niche index provider, Target Date Analytics, are already in the market. While the target date asset allocation approach has been widely adopted by the investing community, in particular, within retirement plans, the varying asset allocation models being used makes benchmarking a tricky endeavor. S&P is touting the index series for its use of a survey of existing target date funds in the market as the basis for its asset allocation and risk methodology.

Assets in target date funds reached $184 billion at the end of 2007, according to Financial Research Corp. data, an annual growth rate of 70%. In 2000, there were 23 target date funds, and now there are more than 300, according to Lipper. The need to access better benchmarks for target date funds has intensified as recent industry reports, including one from FRC, have detailed an increasingly heavy equities exposure, and higher risk profile, across the target date fund arena. Some funds with the same target retirement year vary in equities exposure by as much as 50%, the reports indicated.

Standard & Poor's Target Date Index series comprises nine multi-asset class indices:

• The S&P Target Date Retirement Income Index
• The S&P Target Date 2010 Index
• The S&P Target Date 2015 Index
• The S&P Target Date 2020 Index
• The S&P Target Date 2025 Index
• The S&P Target Date 2030 Index
• The S&P Target Date 2035 Index
• The S&P Target Date 2040 Index
• The S&P Target Date 2045+ Index

The first target date ETF portfolio family was created by XShares, in conjunction with TD Ameritrade. State Street Global Advisors also has filed for a series of target date ETFs. In the open-end mutual funds industry, PIMCO Funds has launched a series of target date funds pegged to Dow Jones target date indexes. (See story here).

In conjunction with the launch, S&P has created a companion Target Risk Index series, four multi-asset class indexes, each corresponding to varying risk levels. Asset classes exposures are determined by surveying all the existing target date funds, and a short side risk framework is added to set asset class weights. The series ranges from conservative to moderate, growth and aggressive.

The index provider has also produced a white paper on target date funds that can be accessed by going to www.standardandpoors.com/indices and clicking on Research.