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Reinventing Target Date Investing

BlackRock brings powerful institutional capabilities to investors with a whole portfolio approach that seeks to increase retirement wealth while adding little to no risk.

Since they debuted in the 1990s, target date funds (TDFs) have become a favored option for both retirement plan sponsors and participants. Among sponsors, these funds added another diversification vehicle to their offerings. 

To gain insights into how institutional investors can make best use of these important tools, we spoke to two experts from BlackRock’s Multi-Asset Strategies & Solutions (MASS) team: Nick Nefouse, CFA, Head of Retirement Solutions and Global Head of LifePath® (BlackRock’s global TDF franchise), and Michael Pensky, CFA, Portfolio Manager for Global Tactical Asset Allocation.

Q: How does the active vs. passive question factor into BlackRock’s approach to TDFs?

Michael Pensky: The conversation should not be, “Is this a passive, indexed product or an active product?” It should focus on specific goals and how to use all the tools available – both indexed and actively managed instruments – to help investors achieve their specific goals.

This is the approach we use for LifePath Dynamic. We’re leveraging our entire platform and whole menu of investment options – spanning all asset classes and both indexed and active products – to give clients far more sophisticated, powerful tools and strategies to help achieve their outcome goals in a consistent way. In seeing the capabilities and choices LifePath offers, many investors quickly realize that it’s completely different than other TDFs.

Nick Nefouse: I agree – the idea that you must be either active or passive, top down or bottom up, is wrong and outdated. It all depends on the asset classes, how your portfolio is constructed, and other issues. BlackRock is the largest provider of custom TDFs, and as mentioned, with LifePath we solely focus on driving better returns without increasing risk.

Michael Pensky

Q: What specific features set LifePath Dynamic apart from other TDFs?

Michael Pensky: With LifePath Dynamic, we want to provide clients with extra return, clear transparency and a heavy focus on risk management. That’s a stark contrast to most “active” TDFs seen in the last 30 years – which were essentially style-box products that supposedly held an equity glidepath over time. Today, BlackRock is at the forefront of taking a more sophisticated, whole portfolio approach when constructing these investment vehicles for clients.

First, it has a transparent objective with a clear benchmark we expect clients to compare us against. That’s LifePath Index. Up front, clients know exactly what our benchmark is; the measure of our success is out there for everybody to see.

Secondly, by aiming to generate additional return while adding no or little additional risk over time, LifePath Dynamic can potentially create vastly better retirement outcomes. Just mathematically, if you can add, say 50 basis points to 1% or 1.5% to the portfolio without materially increasing risk, over time that compounding can add significant growth.

Third, LifePath Dynamic uses a whole portfolio approach to achieve these objectives. As we’ve already touched on, the whole portfolio approach is at the core of how BlackRock delivers outcomes for clients.

Fourth, LifePath Dynamic brings a menu of diversified investment vehicles to a retirement portfolio, to increase the likelihood of consistently achieving attractive alpha while, again, adding no or little additional risk over time.

Q: Can you speak to BlackRock’s approach to TDF construction?

Nick Nefouse: As a metaphor for BlackRock’s whole portfolio approach to TDF construction, think about comparing an all-star sports team and a championship team. The all-star team is cobbled together. These people don’t play together regularly, and it doesn’t always work. This is the strategy that many TDFs still use.

The championship team, however, has a vision, and they’re all working together around that vision. That’s what we mean by “whole portfolio approach.” We bring in certain players, meaning specific investment vehicles, because we believe they’re the best choice for that individual client’s portfolio strategy. We don’t care whether they’re active, passive, or a blend. We just want the right players that will work best together to achieve the desired outcome. It’s a big difference.

Also, remember the defense is just as important as the offense. Effective retirement portfolios must rigidly defend against inevitable market drawdowns.

Michael Pensky: Yes. It’s hard to understate how important risk management is in a retirement portfolio. It is really core to BlackRock’s DNA and that’s strongly demonstrated in LifePath Dynamic. We leverage our proprietary Aladdin® platform to ensure every component in LifePath Dynamic is risk controlled and stress tested. Our whole portfolio approach wouldn’t be possible without this technology.

Nefouse quote

Q: Say just a little more about the Aladdin technology. What makes that special?

Michael Pensky: Aladdin can break a complex portfolio down into thousands of predictive risk factors so you can gauge a portfolio’s actual positioning at any given time. It allows us to run countless stress scenarios to identify risk that you might miss by just looking at, say, standard deviation. Aladdin can also spot small unintended biases and analyze correlations across all sub-components based their actual current holdings – not long-term return characteristics –to identify unintended concentration or exposures. Again, you may frequently miss these important issues without this technology.

Aladdin allows us to be extremely precise in measuring risk at any given moment and for any scenario. That, in itself, doesn’t deliver excess return. But it allows us to help build portfolios with tighter risk control and better performance consistently over time.

Q: There’s a lot of discussion about how the pandemic may affect people’s retirement choices, both now and later in their lives. How does the LifePath Dynamic offer flexibility to adapt to any potential new trends in retirement choices?

Nick Nefouse:  Something we’ve observed on the LifePath platform is that more people are retiring early and that accelerates their need for more income. LifePath Dynamic allows both plan sponsors and participants to optimize for different goals with precision. This naturally includes factoring in any potential market challenges, such as prolonged high inflation, which more people are concerned about. 

With more people retiring early, it underscores our earlier point on the importance of risk management and BlackRock’s Aladdin platform, especially around retirement. What we don’t want to do is expose these – often forced – early retirees into a portfolio with too much market risk. 

Michael Pensky: The key feature of LifePath Dynamic is that it is dynamic, as implied by the name. Every day, we’re applying strategies that analyze the current environment at a granular level to find drivers of returns – and to learn how those daily signals are being interpreted by other market participants and priced into instruments.

By using our technology and whole portfolio approach to gain a deep understanding of what is really driving the market, we identify themes that allow us to dynamically reposition portfolios to take advantage of many small shifts other providers miss. That’s a key way we can generate additional return for portfolios.

Learn more about LifePath Dynamic.


The LifePath Funds may be offered as mutual funds. You should consider the investment objectives, risks, charges and expenses of each fund carefully before investing. The prospectuses and, if available, the summary prospectuses contain this and other information about the funds, and are available, along with information on other BlackRock funds, by calling 800-882-0052 or from your financial professional. The prospectuses and, if available, the summary prospectuses should be read carefully before investing.

LifePath Dynamic target date funds are invested mainly in U.S. and global stocks early on, shifting to more conservative investments, such as bonds, as investors get closer to retirement. The target date in the name of the fund designates the approximate year in which an investor plans to start withdrawing money. Typically, the strategic asset mix in each portfolio systematically rebalances at varying intervals and becomes more conservative (less equity exposure) over time as investors move closer to the target date. Investment in the funds is subject to the risks of the underlying funds. The principal value of the funds is not guaranteed at any time, including at and after the target date.

None of the information constitutes a recommendation by BlackRock, or an offer to sell, or a solicitation of any offer to buy or sell any securities, product or service. The information is not intended to provide investment advice. BlackRock does not guarantee the suitability of potential value of any particular investment. The information contained herein may not be relied upon by you in evaluation the merits of investing in any investment.

This material is provided for educational purposes only and should not be construed as research. The information presented is not a complete analysis of the global retirement landscape. The opinions expressed herein are subject to change at any time due to changes in the market, the economic or regulatory environment or for other reasons. The material does not constitute investment, legal, tax or other advice and is not to be relied on in making an investment or other decision.

Investing involves risk, including possible loss of principal. Asset allocation models and diversification do not promise any level of performance or guarantee against loss of principal. Investment in target date funds is subject to the risks of the underlying funds. The target date is the approximate date when investors plan to start withdrawing their money. The blend of investments in each portfolio is determined by an asset allocation process that seeks to maximize assets based on an investor’s investment time horizon and tolerance for risk. Typically, the strategic asset mix in each portfolio systematically rebalances at varying intervals and becomes more conservative (with less equity exposure) over time as investors move closer to the target date. The principal value of a fund is not guaranteed at any time, including at and after the target date.

The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) to be reliable. No representation is made that this information is accurate or complete. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

No part of this material may be reproduced, stored in any retrieval system or transmitted in any form or by any means, electronic, mechanical, recording or otherwise, without the prior written consent of BlackRock. This publication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

©2021 BlackRock, Inc. All rights reserved. BLACKROCK, ALADDIN and LIFEPATH are trademarks of BlackRock, Inc. All other trademarks are those of their respective owners.

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