- iShares S&P Aggressive Allocation Fund (AOA)
- iShares S&P Growth Allocation Fund (AOR)
- iShares S&P Moderate Allocation Fund (AOM)
- iShares S&P Conservative Allocation Fund (AOK)
The double bear market of this decade and resulting 38% decline may sour many on the stock market. Still, people need to save money and give it a chance to grow over the long term. iShares has just launched four ETFs -- ETFs of ETFs, actually -- that might address the disinterested investor better than target date funds do.
A potentially thornier issue is the high correlation that exists among the funds. The lowest correlation I could find was around 0.80 between EEM and IJR and IJH. IJR, IJH and EFA correlate at greater than 0.90 with IVV for the past year, according to PortfolioScience.com. Correlations have gone up during this bear market, not an uncommon occurrence, and anyone interested in these funds should not expect them to be immune from future bear markets. As an example, the growth allocation, AOR, would have been down 28.7% year to date had an investor implemented the ETFs in the exact manner AOR targets, compared with the S&P 500's 38% decline. Depending on the investor, this may or may not be acceptable. I would note that AOR targets roughly a 70% equities/30% fixed-income allocation. AOA, the aggressive fund, targets 92%/8%, AOM targets 49%/51% and AOK targets 29%/71%. The fees are quite reasonable, with none of the funds costing more than 35 basis points. Above, I mentioned that these allocation funds could be a better alternative to target date funds. The allocation funds have a fixed allocation and rebalance to the allocation objective annually. Target date funds gradually move to more and more fixed income as time goes on. The problem with this is that people in their late 50s or early 60s who are healthy and have one or both parents still alive probably have a long time horizon in front of them and run the risk of being too conservative. A 60-year-old might look to a target date fund for 2015. The iShares S&P Target Date 2015 Index Fund ( TZE) has a 50%/50% allocation now, but in 2015, TZE will likely have only 33% in equities. Sixty and healthy could mean living to 90, which means the loss of purchasing power becomes the biggest financial threat. The proper allocation fund, for someone looking to be a less active market participant, can allow for a better balance of having enough growth exposure and being able to sleep at night.