News |RPG in the News |Investors Business Daily, 11/27/07

RPG Featured in Investor's Business Daily (11/27/07) - XShares Offers ETFs Designed For 401(k)s

Investor's Business Daily - 11/27/07

XShares Offers ETFs Designed For 401(k)s BY JESSE EMSPAK INVESTOR'S BUSINESS DAILY Posted 11/27/2007 XShares Advisors has entered into an alliance with RPG Consultants to get target-date exchange traded funds into retirement plans. XShares Advisors rolled out a set of target-date ETFs, called the TDAX Independence ETFs, in October. They are geared to investors saving for retirement. Target-date funds, also known as life cycle funds, start out as mostly equity funds with a smattering of fixed income. As time passes, the fixed-income portion grows while the equity piece shrinks. Retirement plans have been slow to adopt ETFs as a vehicle, largely because most plan administrators don't offer a way to trade them in the middle of the day. RPG and XShares offer a way to put ETFs in a 401(k) plan without the participant having to open up a brokerage account or use the brokerage option within the plan, both of which cost money.  Growth Ahead XShares' president, Tony Dudzinski, says that while ETFs aren't a big part of 401(k) plans yet, they will grow as consumers become more aware of the fees that funds charge. While ETFs don't always have lower expense ratios, those expenses are all that the investor pays. There are no 12b-1 fees, for example, which are charged to cover the costs of marketing a fund. Alvin Rapp, RPG's founding partner, says his firm decided ETFs would be a bigger part of the 401(k) market, so it would be a good idea to alter the platform to allow for ETFs to trade the way funds do. One issue was that ETFs are like stocks in that one can't buy partial shares, as with funds. So the system holds the leftover cash when a participant buys an ETF and puts it in a money market account. Since an investor can buy fractions of an ETF share, spare cash is held until until more money is deposited in the account. Cheaper Funds Dudzinski says the target-date ETFs are cheaper to operate than a regular target-date fund, because it is made up of individual securities rather than other funds. The target date ETFs target 2010, 2020, 2030, and 2040. Expense ratios start at 0.65%. The Fidelity Freedom Fund 2040 is 0.82%. The ETFs can also be used as a default investment in plans, Dudzinski says.  Even if the market share of the TDAX ETF family remains small, it can still be a large asset base, he says.  He notes that the 401(k) market is measured in trillions of dollars. If TDAX funds capture only 1% of that, it is still billions. "We could see something like $4 billion in the next two to three years," he said. 

Dudzinski expects the ETFs to be adopted through broker-sold retirement plans because they have more freedom to choose funds.