BlackRock’s Target Date
Explorer® Methodology

Any and all information set forth herein and pertaining to the Target Date Explorer® and all related technology, documentation, and know-how (“information”) is proprietary to BlackRock.

For Institutional and Financial Professional Use Only

This is designed to help plan fiduciaries compare target date options using Morningstar® data and is not intended to be used as sales material.

Introduction

The BlackRock Target Date Explorer® is a tool developed to assist the user to assess target date funds (“TDFs”) across a number of dimensions. The goal is to help the user identify the fund series that may help address participants’ needs and plan sponsor preferences.

A Target Date Explorer® user can select up to three TDFs from the universe of TDFs included in the Morningstar database by applying various filters or key word search functionality. By default, a benchmark is included in the analysis that can be deselected by the user. Data is sourced from Morningstar and certain fund data is updated daily, monthly, quarterly or as otherwise determined by Morningstar. The TDF universe includes all TDFs available in the Morningstar database1. In addition to TDF mutual funds, TDF collective investment funds are also included to the extent they are available in the Morningstar database. If the Morningstar database does not have values for certain TDFs and fields, the analysis will report as “N/A”.

The Target Date Explorer® generates a set of outputs that can be viewed and customized on screen or collated into a customizable Target Date Explorer® Report (the “report”) comparing the selected TDF series and benchmark on the following dimensions: (i) Key Characteristics, (ii) Glidepath, (iii) Asset Class Exposure, (iv) Expense Ratio, (v) Performance by Fund, (vi) Growth of Wealth, (vii) Performance by Calendar Year, (viii) Performance by Quarter-End, and (ix) Asset Allocation Table. 

Target Date Explorer®: Input

The user may select and compare up to three TDF series and a benchmark. The user has the ability to filter and search the Morningstar database by one or multiple criteria, including but not limited to:

  • Type
    • “Index”: defined as a TDF series that has an “active exposure percentage” of equal to or less than 10% as calculated by Morningstar
    • “Hybrid”: defined as a TDF series that has an “active exposure percentage” of greater than 10% and equal to or less than 70% as calculated by Morningstar
    • "Active”: defined as a TDF series that has an “active exposure percentage” of greater than 70% as calculated by Morningstar
    • If the “active exposure percentage” field is not available for a TDF series, we include the series in each of the three filters. For the BlackRock collective investment funds, we leverage the missing characteristics from the “like” BlackRock TDF mutual fund strategy as it relates to fund type, glidepath approach, proprietary or multi-manager, % index and Morningstar rating.
  • Provider: organization sponsoring TDF series
  • Share Class
    • Longest track record
    • Lowest average expense ratio
    • Highest average expense ratio
    • Load
    • No-Load
  • Benchmark2: Morningstar Category Average
  • Equity at Retirement: defined by the percentage of equities and equity-like asset classes of the “Age 65 Fund” (refer to the “Age 65 Fund” methodology3):
    • <30%
    • ≥30% to <40%
    • ≥40% to <50%
    • ≥50% to <60%
    • ≥60%

Target Date Explorer®: Output – Key Characteristics

The Key Characteristics provides an overview of important dimensions of the TDF series and benchmark.

“Glidepath Approach” – TDF series are classified by Morningstar as “Strategic” or “Tactical”. A TDF series is determined by Morningstar to be Tactical if the TDF series’ manager has the ability to make short-term active deviations from the series’ strategic asset allocation, defined as a TDF’s long-term target allocations as determined by the glidepath, in an attempt to gain value. Examples of tactical decisions are deviating from the funds' strategic asset allocation policy, allocating assets dynamically among underlying funds, and using derivatives to synthetically alter the asset class exposure of the TDF series. Not all TDFs may be classified by Morningstar and if no classification is available, the field will show as “N/A”.

“Proprietary or Multi-Manager” – TDF series are classified by Morningstar as either “Proprietary” or “Multi-Manager”. Morningstar considers a TDF series to be proprietary if over 90% of the underlying assets are managed by the TDF series’ manager. Not all TDFs may be classified by Morningstar and if no classification is available, the field will show as “N/A”.

“Equity Starting Point” - This data point shows the strategic allocation to equities and equity-like asset classes for the longest dated TDF vintage of the selected TDF series as reported by Morningstar.

“Equity at Retirement” – This data point shows the strategic allocation to equities and equity-like asset classes in terms of “Years to Target” with the “Target” being age 65, which is assumed to be the age of retirement.

“Post-Retirement Rolldown” – This data point indicates if the selected TDF series’ glidepath changes after the assumed retirement age of 65 and for how many years.

“Equity Allocation at Termination” – This data point shows the strategic allocation to equities and equity-like asset classes for the earliest dated vintage of the fund series, which may be the Retirement vintage.

“Percent Index” – The percentage of index is the allocation percentage of all index assets in the TDF series as calculated by Morningstar (1 – active exposure percentage). To determine the active/passive split, Morningstar looks to the TDF series' holdings, which are typically funds, to see whether they are labeled as index or active funds in the Morningstar database. By summing the assets in active funds, Morningstar determines the proportion of assets that is actively managed. The remaining portion is the proportion of assets that is passively managed. Morningstar considers a TDF series' active / index exposure to be not applicable (“N/A”) if a TDF series owns individual securities instead of funds. At least 90% of a TDF series' assets by market value must be identified as a fund in order for the active exposure percentage to be assigned. 

“Morningstar Rating” – This shows the Morningstar Analyst Rating. It is not a credit or risk rating. It is a subjective evaluation performed by the manager research analysts of Morningstar. Morningstar evaluates funds based on five key pillars, which are process, performance, people, parent, and price. Analysts use this five pillar evaluation to determine how they believe funds are likely to perform over the long term on a risk-adjusted basis. They consider quantitative and qualitative factors in their research, and the weighting of each pillar may vary. The Analyst Rating scale is Gold, Silver, Bronze, Neutral and Negative. A Morningstar Analyst Rating of Gold, Silver, or Bronze reflect an Analyst’s conviction in a fund’s prospects for outperformance. Analyst Ratings are continuously monitored and reevaluated at least every 14 months. For more detailed information about Morningstar’s Analyst Rating, including its methodology, please go to http://corporate.morningstar.com/us/documents/MethodologyDocuments/
AnalystRatingforFundsMethodology.pdf
.

The Morningstar Analyst Rating should not be used as the sole basis in evaluating a fund. Morningstar Analyst Ratings are based on Morningstar’s current expectations about future events; therefore, in no way does Morningstar represent ratings as a guarantee nor should they be viewed by an investor as such. Morningstar Analyst Ratings involve unknown risks and uncertainties which may cause Morningstar’s expectations not to occur or to differ significantly from what we expected.

“Investment Type” – This field describes the legal structure of the TDF series such as mutual fund or collective investment fund. With respect to collective investment funds, fee information is self-reported by each collective investment fund manager.

“Average Net Expense Ratio” – This shows the average net expense ratio across the TDF series (equally-weighted). With respect to collective investment funds, fee information is self-reported by each collective investment fund’s investment manager. All fund data is provided by Morningstar. Collective investment funds may be offered as gross of fee funds, where an investment management fee is charged as a percentage of a plan’s assets invested in the fund, as negotiated by the plan sponsor and the investment manager. In such cases, the investment management fee is charged directly to the plan and is not reflected in the fund’s net asset value. Other collective investment funds may be offered as net of fee funds, where the investment management fee is accrued daily as a percentage of the net assets of the collective investment fund and reflected in the fund’s net asset value. Some figures contained in “Average Net Expense Ratio” are gross of fees and/or may not include investment management fees. Average Net Expense Ratios would be higher if such investment management fees were included. BlackRock is not able to make adjustments to Average Net Expense Ratio figures.

Target Date Explorer®:
Output – Glidepath

The Glidepath output is designed to help the user assess the suitability of the TDF series glidepath relative to participants’ needs and plan sponsor preferences. The output shows the strategic glidepaths of the selected TDFs and benchmark. The chart also shows the upper and lower bound of all TDF glidepaths in the Morningstar database. The bounds are defined as the average of the three TDFs with the highest (upper bound) and lowest (lower bound) allocations to equities and equity-like asset classes. The bounds are calculated based on each TDF vintage in the Morningstar database. The benchmark average is calculated in a similar manner and includes all TDFs in the Morningstar universe.

If two or more share classes of the same TDF strategy are selected, the TDFs’ color labels are identical. If two or more TDF strategies are selected that have identical glidepaths, the glidepath will render as a single colored line in the chart.

The glidepaths are shown from 45 years to retirement (approximately age 20) to 30 years post retirement (approximately age 95) and fall into three distinct phases:

  • Accumulation: The period of time when investors are in the earlier stages of building their savings. This period spans 45 to 15 years from retirement.
  • De-risking: The period of time when investors are approaching / entering retirement. This period spans 15 years from retirement to retirement.
  • In Retirement: The period of time when investors have entered / are in retirement. This period spans the post-retirement years.

For purposes of comparison, we identified one TDF vintage as a proxy for each phase throughout the Target Date Explorer®:

  • Accumulation: the vintage that is between 30 and 35 years to retirement. (i.e., the 2050 vintage)
  • De-risking: the vintage that is between 5 and 10 years to retirement. (i.e., the 2025 vintage)
  • In-Retirement: 2015 / Retirement vintage (refer to the “Age 65 Fund” methodology)

Target Date Explorer®: Output – Asset Class Exposure

The charts depict the selected TDFs’ and benchmark’s actual allocations to the following distinct asset classes and across all available vintage funds: U.S. Equities, International Equities, Real Estate, Commodities, TIPs, U.S. Fixed Income, High Yield, International Fixed Income, Cash and Other based on Morningstar data. We use a look through process within the Morningstar data to identify the exposure provided by securities such as derivatives. If Morningstar data is insufficient to determine the asset class of a holding, the holding is categorized as “Other”. In case of a BlackRock strategy that has holdings that are not classified using Morningstar data, we assign the holding the appropriate asset class based on the economic exposure provided by such holding.

Asset class mapping between Morningstar and BlackRock is subjectively chosen by BlackRock, and other managers may select a different methodology for such mapping that can differ from manager to manager.

Allocations may not add up to 100% due to rounding and / or the use of derivatives.

In order to calculate the benchmark asset allocation, we calculate the average allocation to each of the distinct asset classes for each TDF vintage and TDF strategy in the universe. Average allocations are summed up for each vintage and rescaled to 100%.

In the online version of the Target Date Explorer®, the user has the ability to drill down into the individual asset class allocation percentages across the selected TDFs and benchmark by TDF vintage by clicking on the desired asset class within the chart. For purposes of the report, the user can select to add a table with the asset allocation percentages across the selected TDFs and three proxy vintages (i.e., Asset Allocation Table).

Target Date Explorer®: Output - Expense Ratio

“Average Net Expense Ratio” – The chart depicts the average net expense ratio for each selected TDF series as well as the benchmark. With respect to collective investment funds, fee information is self-reported by each collective investment fund’s investment manager. All fund data is provided by Morningstar. Collective investment funds may be offered as gross of fee funds, where an investment management fee is charged as a percentage of a plan’s assets invested in the fund, as negotiated by the plan sponsor and the investment manager. In such cases, the investment management fee is charged directly to the plan and is not reflected in the fund’s net asset value. Other collective investment funds may be offered as net of fee funds, where the investment management fee is accrued daily as a percentage of the net assets of the collective investment fund and reflected in the fund’s net asset value. Some figures contained in “Average Net Expense Ratio” are gross of fees and/or may not include investment management fees. Average Net Expense Ratios would be higher if such investment management fees were included. BlackRock is not able to make adjustments to Average Net Expense Ratio figures.

"Net Expense Range” - The “Net Expense Range” for each depicted target date fund series shows the percentage of fund assets, net of reimbursements, used to pay for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund's NAV. Sales charges are not included in the expense ratio.

“Gross Expense Range” - The “Gross Expense Range” for each depicted target date fund series shows the percentage of fund assets used to pay for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund's NAV. Sales charges are not included in the expense ratio.

Target Date Explorer®: Output – Performance by Fund

By default, the chart and table depict the historic annualized risk and return for the 2015 / Retirement vintage (refer to “Age 65 Fund” methodology) of the selected TDF and benchmark for the longest time period that all selected TDF series have performance history (“Full Time Period”). Data is shown as of the most recent month end.

The user has the ability to toggle between the three proxy TDF vintages, each representing a phase (Accumulation, De-risking or In-Retirement). Moreover, the user can also toggle between distinct historical time periods as well as select a customized time period. For the latter, the user must select a time period of at least one year.

If performance for a fund is unavailable for a certain time period, fields will show as “N/A”.

The predefined time period available to the user are:

  • Full Time Period: defined as time period when all selected TDFs have performance history
  • Dot Com Crash: Jan 2001 – Mar 2003
  • Expansion Period: Apr 2003 – Oct 2007
  • Global Financial Crisis: Oct 2007 – Feb 2009
  • Post-Crisis Rebound: Mar 2009 – Mar 2011
  • Risk on, Risk Off: May 2011 – May 2012
  • Equity Bull Market: Jun 2012 – Jan 2018

“Risk Adjusted Return Ratio” – The ratio is defined as annualized return divided by annualized risk. The higher the number, the better the fund’s historic risk adjusted performance.

“Annualized Risk” – This field measures the deviation of returns from its mean. Also referred to as annualized standard deviation, annualized risk is calculated using monthly returns and then annualized.

“Maximum Drawdown” – This measure is defined as the largest peak to trough decline during a specified time period of a fund. It is quoted as the percentage between the peak to the trough.

“Time to Recovery” – It is defined as the time it takes until a fund reaches its previous peak. If the previous peak has not yet been reached, the table will show “N/A”. It is quoted in terms of months to recover from the decline from the previous peak.

Target Date Explorer®: Output - Growth of Wealth

By default, the table will depict performance and risk information for the 2015 / Retirement vintage (refer to “Age 65 Fund” methodology) of the selected TDFs and benchmark for the longest time period that all selected TDF series have performance history as of the most recent month end. The chart applies the historic returns for the selected time period to an initial hypothetical balance of $100,000 (“Beginning Wealth”) to show how this initial investment would have fared over time (“Ending Wealth”).

The user has the ability to toggle between the three proxy TDF vintages, each representing a phase (Accumulation, De-risking or In-Retirement). Moreover, the user can also toggle between distinct historical time periods (as outlined in the section entitled “Performance by Fund” of the Methodology document) as well as select a customized time period. For the latter, the user must select a time period of at least one year.

If performance for a fund is unavailable for a certain time period, fields will show as “N/A”.

Target Date Explorer®: Output – Performance by Calendar Year

By default, the chart ranks the performance of the 2015 / Retirement vintage (refer to “Age 65 Fund” methodology) of the selected TDF series and benchmark for each calendar year starting with 2008 and through the most recent year end. If a TDF does not have performance for an entire year, the field will show as “N/A”.

The user has the ability to toggle between the three proxy vintages.

Target Date Explorer®: Output – Performance by Quarter-End

By default, the table will depict the historic risk adjusted return ratio, annualized risk and return for the 2015 / Retirement vintage (refer to “Age 65 Fund” methodology) of the selected TDFs and benchmark over 1, 3, 5, 10-year and since inception periods as of the most recent month end and quarter end. If performance for a fund is unavailable for a certain time period, fields will show as “N/A”.

The chart depicts the annualized return of the selected (on screen) or all three (report) TDF proxy vintages and benchmark relative to the universe of all TDFs of the same vintage in the Morningstar database over 1, 3, 5, and 10-year periods. Please note that the since inception annualized returns are not shown on the chart. The extreme bottom and top dots show the performance of the worst and best TDF of the specified vintage for the specified time period, respectively. The lower line of the box shows the performance at the 25th percentile, the horizontal line in the box shows the median or 50th percentile performance and the upper line of the box shows the performance at the 75th percentile. 

Note that since inception numbers may have different inception dates for each vintage of each TDF selected.

Target Date Explorer®: Output – Asset Allocation Table

The table depicts the selected TDFs’ and benchmark’s actual allocations to the following distinct asset classes and across all available vintage funds: U.S. Equities, International Equities, Real Estate, Commodities, TIPs, U.S. Fixed Income, High Yield, International Fixed Income, Cash and Other based on Morningstar data.

Allocations may not add up to 100% due to rounding and / or the use of derivatives.

Target Date Explorer®: Reporting

By default, all outputs are selected to be included in the report. However, under step 1 the user has the ability to change the order of the output, add additional outputs as well as delete certain outputs. Certain outputs cannot be deleted4 from the report.

Under step 2, the user can customize the title page of the report and under step 3 generate the report in a pdf format. The report will always include the Target Date Explorer® Methodology at the end of the report.