United Airlines 401K Flies Above the ETF Benchmark, But Below Kellogg
11/12/2010 0 comments
United Airlines (UAUA) Flight Attendant 401(k) Plan's 401K plan consists of 22 funds. These funds enable participants to gain exposure to 3 major assets: US Equity, Foreign Equity, Fixed Income.
Summary
US Equity 7 funds (including company stock)
International Equity 2 funds
Balanced Funds 4 funds
Fixed income 3 fund
Target date 6 funds
If the company's stock is excluded (better left for an employee stock purchase plan) as well as the target date funds (which can't be effectively leveraged in a portfolio), the participant is left with 15 funds in three asset classes.
We compare this with the Kellogg (K) plan, which has three asset classes -- so that we can see what contributes to higher performance portfolio. In this case, Kellogg only has seven funds with a very limited choice in fixed income and international asset classes.
| Asset Class | United Airlines | Kellogg |
| U.S. Equity Excluding Company Stock | 6 | 5 |
| International Equity | 2 | 1 |
| Balanced Funds | 4 | |
| Fixed Income | 3 | 1 |
| Target Date | 6 |
The list of minor asset classes covered:
Conservative Allocation: AOK
Financial: IYF, VFH, IPF, PFI, DRF, RYF
Foreign Large Blend: EFA, VEU, GWL, PFA
Intermediate Government: IEI, VGIT, ITE
Intermediate-term Bond: AGG, CIU, BIV, BND
Large Blend: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX
Large Growth: IVW, IWZ, JKE, VUG, ELG, QQQQ, RPG, SCHG
Large Value: IVE, IWW, JKF, VTV, ELV, PWV, RPV, SCHV
Moderate Allocation: AOM
Retirement Income:
Short Government: SHY, SHV, VGSH, PLK, USY
Target Date 2000-2010: TZD
Target Date 2011-2015: TZE
Target Date 2021-2025: TZI
Target Date 2031-2035: TZO
Target Date 2041-2045:
Us Equity: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX
As of Nov 8, 2010, this plan investment choice is rated as averagebased on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are. We compare the detailed ratings with the Kellogg plan.
| Plan Rating Attribute | United Airlines | Kellogg |
| Diversification | 43% | 13% |
| Fund Quality | 20% | 99% |
| Portfolio Building | 42% | 47% |
| Overall Rating | 35% | 53% |
The key difference between the two plans is that the United plan has more lower quality funds, whereas the Kellogg plan has fewer higher quality plans. In the end, the Kellogg plan wins the ratings battle, but we should wait to see what that means in returns.
The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies (SAA and TAA, both provided by MyPlanIQ). For comparison purposes, we also include the moderate model portfolios of a typical 3 asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETFs equivalent:
US Equity: SPY or VTI
Foreign Equity: EFA or VEU
Fixed Income: AGG or BND
Performance chart (as of Nov 8, 2010)
click to enlarge
Performance table (as of Nov 8, 2010)
| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| United Airlines Flight Attendant 401(k) Plan Tactical Asset Allocation Moderate | 8% | 71% | 6% | 62% | 10% | 94% |
| United Airlines Flight Attendant 401(k) Plan Strategic Asset Allocation Moderate | 10% | 103% | 0% | -3% | 5% | 30% |
| Three Core Asset ETF Index Funds Tactical Asset Allocation Moderate | 2% | 19% | 3% | 29% | 5% | 48% |
| Three Core Asset ETF Index Funds Strategic Asset Allocation Moderate | 13% | 106% | 1% | 3% | 5% | 21% |
Currently, asset classes in US Equity (SPY, VTI), Foreign Equity (EFA, VEU) and Fixed Income (AGG, BND) are doing relatively well. These asset classes are available to United Airlines Flight Attendant 401(k) Plan participants.
The United plan outperforms the 3 Asset SIB (as did the Kellogg plan), let's now see how the two plans compare directly.
Performance chart (as of Nov 8, 2010)
Performance table (as of Nov 8, 2010)
| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| United Airlines Flight Attendant 401(k) Plan Tactical Asset Allocation Moderate | 8% | 71% | 6% | 62% | 10% | 94% |
| United Airlines Flight Attendant 401(k) Plan Strategic Asset Allocation Moderate | 10% | 103% | 0% | -3% | 5% | 30% |
| Kellogg 401k Plan Tactical Asset Allocation Moderate | 4% | 35% | 4% | 42% | 8% | 73% |
| Kellogg 401k Plan Strategic Asset Allocation Moderate | 15% | 115% | 3% | 15% | 8% | 45% |
The Kellogg portfolios outperform the United portfolios based on superior fund quality.
To summarize, United Airlines Flight Attendant 401(k) Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.
Improving the number of asset classes and quality of funds would enable portfolios to deliver better returns.
labels:investment,
Symbols:AGG,AOK,AOM,BIV,BND,CIU,DLN,DRF,EFA,ELG,ELV,GWL,IEI,IPF,ITE,IVE,IVV,IVW,IWV,IWW,IWZ,IYF,IYY,JKE,JKF,K,PFA,PFI,PLK,PWV,QQQQ,RPG,RPV,RSP,RYF,SCHG,SCHV,SCHX,SHV,SHY,SPY,TZD,TZE,TZI,TZO,UAUA,USY,VEU,VFH,VGIT,VGSH,VTI,VTV,VUG,VV,
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