401K Investments: Southwest Airlines Should Expand Its Horizon for Their Employees' 401k Plan
09/12/2011 0 comments
We review Southwest Airlines Co 401K Plan.
Southwest Airlines Co. (LUV) operates as a passenger airline that provides scheduled air transportation in the United States. As of December 31, 2009, it operated 537 Boeing 737 aircraft and provided service to 68 cities in 35 states. The company also sells frequent flyer credits and related services to companies participating in its Rapid Rewards frequent flyer program, including car rental agencies, hotels, restaurants, and retail locations. Southwest Airlines Co. was founded in 1967 and is headquartered in Dallas, Texas. The company is one of the best managed airline companies in the U.S.
The plan consists of 11 funds. They cover 3 major assets: US Equity, Foreign Equity, Fixed Income.
| Asset Class | Ticker | Name |
|---|---|---|
| Intermediate-Term Bond | PTTRX | PIMCO Total Return Instl |
| LARGE GROWTH | HACAX | Harbor Capital Appreciation Instl |
| Foreign Large Blend | CEUFX | American Funds EuroPacific Gr 529F |
| SMALL BLEND | ICSCX | ICM Small Company |
| LARGE BLEND | VINIX | Vanguard Institutional Index Instl |
| Retirement Income | MTDIX | Manning & Napier Target Income I |
| Target Date 2000-2010 | MTHIX | Manning & Napier Target 2010 I |
| Target Date 2016-2020 | MTNIX | Manning & Napier Target 2020 I |
| Target Date 2026-2030 | MTPIX | Manning & Napier Target 2030 I |
| Target Date 2036-2040 | MTTIX | Manning & Napier Target 2040 I |
| Target Date 2050+ | MTYIX | Manning & Napier Target 2050 I |
Excluding the 6 target date funds, there are only 5 individual funds for participants to make their own asset allocation.
As of Sep 9, 2011, this plan investment choice is rated as below average based on MyPlanIQ Plan Rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:
Diversification -- Rated as below average (15%)
Fund Quality -- Rated as above average (71%)
Portfolio Building -- Rated as below average (20%)
Overall Rating: below average (34%)
The 5 individual funds are ranked reasonably well. However, lack of diversification coverage has serious impact on how a participant can do in portfolio management and risk management.
The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, 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 Sep 9, 2011)
Performance table (as of Sep 9, 2011)
| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Southwest Airlines Co 401K Plan Tactical Asset Allocation Moderate | 1% | 12% | 4% | 41% | 6% | 55% |
| Southwest Airlines Co 401K Plan Strategic Asset Allocation Moderate | 2% | 16% | 5% | 37% | 5% | 37% |
| Three Core Asset ETF Benchmark Tactical Asset Allocation Moderate | 11% | 122% | 4% | 44% | 5% | 48% |
| Three Core Asset ETF Benchmark Strategic Asset Allocation Moderate | 3% | 23% | 3% | 14% | 2% | 7% |
Currently Commodities, International Bonds and Fixed Income are doing well. Only Fixed Income is available to Southwest Airlines Co 401K Plan participants.
To summarize, diversification and proper risk management are the two major key factors in 401k investing. Southwest Airlines should extend its fund choices to allow plan participants in Southwest Airlines Co 401K Plan to achieve reasonable investment results using portfolio management and risk management strategies for their 401k investments.
Symbols: LUV, SPX, VTI, VEU, BND, PTTRX, HACAX, CEUFX, VINIX, 401K Investments, Retirement Investing, Portfolio Management, Asset Allocation, Risk Management
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
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