XShares, the sponsor of the HealthShares family of ETFs, needs a big hit. Its new target-date exchange-traded funds, which offer one-stop shopping for investors with a specific time horizon, may just fit the bill.The five TDAX Independence funds, which were developed in partnership with discount broker TD Ameritrade ( AMTD) and launched on the NYSE Monday, are the first ETFs aimed at this fast-growing segment of the retirement market. They are also the first ETFs to invest in both stocks and bonds. XShares has struggled to find a market for HealthShares, launched in January, and has experienced some management turnover. Nat Wasserstein, president and head of development for XShares Advisors, left last month, just days before William Henson was hired as chief executive of the parent company, XShares Group. (The CEO post had previously never been filled.) The 19 HealthShares are possibly the least successful ETFs launched this year and an embodiment of how betting on highly specialized products to stand out in a crowded industry can backfire. Each Healthshare tracks a narrow sector of the biotech industry. As of Friday, the entire family had just $96.2 million in assets under management, with HealthShares Diagnostics ( HHD) holding the most, at $32.7 million. That means the average assets under management for the remaining 18 funds comes to a paltry $3.5 million.
And while the funds have performed well this year, trading is very illiquid: There are days when some of them don't change hands at all. Up to now, many people gave XShares the title "ETF company least likely to see 2008." The new target-date ETFs may be just what the company needs to turn things around. Target-date funds offer investors with little time, inclination or skill at managing their money a simple way to save for retirement. All you do is select the date you plan to retire and select the appropriate fund. As the target date approaches, each fund gradually rebalances from a fairly aggressive mix of U.S. and international stocks and bonds to a more conservative one. "Target-date products are the hottest and most important new products to come down the pike in the past decade," says Charles Ruffel, chief executive of Plansponsor, a consulting firm. "They are growing incredibly quick. Millions of dollars are pouring into these products in the 401(k) and defined contribution space and they are also a big winner in the retail market." XShares and TD Ameritrade offer five: the TDAX Independence In-Target ( TDX), TDAX Independence 2010 ( TDD), TDAX Independence 2020 ( TDH), TDAX Independence 2030 ( TDN) and TDAX Independence 2040 ( TDV). All have an expense ratio of 0.65% and are rebalanced quarterly. Unlike many of their mutual fund counterparts, these ETFs are not funds of funds. Each TDAX ETF tracks a custom index composed of a mix of stocks and bonds. Many target-date mutual funds invest in a variety of other mutual funds. That means investors can end up paying several layers of management fees.
The TDAX ETFs aren't XShares' only new products; last week the firm launched a line of seven ETFs that invest in REITs based on indices created by Adelante Shares. But the target-date ETFs have a better chance of gaining traction with investors. The partnership with TD Ameritrade offers many benefits for XShares. In addition to the vote of confidence that the deal represents, the Omaha, Neb., discount brokerage has substantial marketing and sales-distribution muscle. Amerivest, the investment management arm of TD Ameritrade, has 600 advisers in 105 branch offices throughout the country. Ameritrade declined to discuss the marketing campaign for the TDAX ETFs. But XShares chairman and founder Jeffrey Feldman says a $1 million campaign is planned, with ads in both print and television. (Just getting Ameritrade's celebrity pitchman Sam Waterston to say "XShares" should do wonders for the firm.) Henson, XShares' new CEO, comes from Grail Partners, one of the company's backers. He dismisses talk that the venture capital firm put him in charge to stem the red ink, saying he was approached by XShares to run the business. The CEO spot had previously been left open because the firm was looking for an executive who could transform XShares from a start-up to a growth company. The company says hiring Henson helped it secure $10 million of financing from a group of institutional European investors who preferred not to be named. The funds will be used for marketing, sales and product development. "Do I believe there is a fundamental problem with the firm's strategy? No!" says Henson. "This is consistent with the original vision and strategy of the business" to create private-label joint-ventures with index companies.