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BlackRock expands index fund offerings for defined contribution plans


BlackRock has further expanded its menu of index mutual funds for defined contribution (DC) plans. With the June launch of nine BlackRock LifePath Index Portfolios, and the All Country World Index ex US Fund, the firm now features a full suite of 16 core index mutual funds that sponsors can use to construct a well balanced menu of investment choices for their participants.

The newest funds, which will be available on most major record-keeping platforms, complement a product suite that also includes BlackRock’s S&P 500 Stock Fund; Small Cap Index Fund, tracking the Russell 2000 Index; International Index Fund, tracking the MSCI EAFE Index; Bond Index Fund, tracking the Barclay’s US Aggregate Index; and the Russell 1000 Index Fund.

While indexing has long had a role in collective trust funds used by large and mega institutional DC plans, the trend towards indexing is expected to grow in the advisor-driven, small-to-mid size plan markets that have historically featured a heavier allocation to actively managed funds. Increasingly, plan sponsors are recognising that indexing offers significant benefits to DC plans of all sizes, providing a transparent, low cost and low maintenance approach to managing some or all of an investment portfolio.

In 1971, entities now part of BlackRock pioneered the development of the industry’s first index fund, allowing investors to capture broad market returns in a single investment. Since then, the firm has met changing client needs by expanding its line-up of index solutions across various global equity and fixed income strategies offered through collective trusts, mutual funds and iShares(R) Exchange Traded Funds (ETFs). At June 30 2011, BlackRock managed over $2 trillion in index based products spanning equity, fixed income, multi asset and alternative investment strategies.

"BlackRock is uniquely positioned to serve small and mid-sized DC plan sponsors that want to apply index strategies in their plans. Now, with our enhanced line-up we can help those that prefer to implement this form of investment style through their use of mutual funds," says Chip Castille, Managing Director and head of BlackRock’s U.S. and Canada Defined Contribution Group.

"The growing indexing trend in this market is partly in response to regulatory focus on fees and the desire for increased transparency," he says. "Sponsors like the publicly available pricing offered by mutual funds, as well as the detailed, standardised disclosures for prospectuses and other communications."

Industry wide, it’s expected that the share of DC assets in index solutions will nearly have doubled from 11% in 2005 to 20% by 2015 — bringing the allocation into closer alignment with the percentage of indexing seen in defined benefit plans.

"When considering plan design however, choosing between indexing and active management does not need to be an either/or decision," Castille says. "The first tier in plan design should be a qualified default investment alternative such as a target date fund or an allocation fund that may use indices or active managers. The second tier may comprise the building blocks for a diversified portfolio — a suite of efficient professionally managed index and active funds — and the third tier may comprise more specialised exposures, including index funds or ETFs and actively managed funds for more savvy participants."

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