Vanguard ETF: | 7.4%* | ||
Diversified Core: | 8.1%* | ||
Six Core Asset ETFs: | 7.3%* |
Articles on iws
- ETF Cloning of the Schwab VA
11/30/2010
In a previous article noted that Variable Annuities have well chosen sub account funds that can lead to a portfolio that can deliver good returns. We now examine the Schwab Select Annuity, compare it with the Fidelity Personal Retirement Annuity and see how well an ETF clone performs
In Summary, the Fidelity Personal Retirement Annuity's plan consists of 56 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, REITs, Emerging Market Equity and Fixed Income.Asset Class
Schwab Fidelity
US
35 13
International
5 5
Sector
3 12
Balanced
2 8
Fixed income
9 7
Emerging Markets
1 3
Real estate
1 1
Target Date
0 7
We are now going to build a clone plan and see how it performs. We will simplify the choice and not duplicate styles.
US FundsStyle Fidelity ETF LARGE BLEND
DGAGX KBCAX PIODX PJIAX SICWX SWHGX SWPPX
VTI
LARGE GROWTH
AAGOX JGIIX NMTBX SDGAX
VUG
LARGE VALUE
ACGMX ACSDX AVLIX KDCAX MEIIX
VTV
MID-CAP BLEND
GMCBX GTAVX RMVSX SOPVX
VO
Mid-Cap Growth
AMGOX BGRFX DFCIX TEGAX
IJK
Mid-Cap Growth
FMCCX
MID-CAP VALUE
ABASX
AVUA
IPVIXIJJ
SMALL BLEND
KDSAX
SMEIXVB
Small Growth PGOFX SIGWX SSDAX VBK Small Value CSSBX DEVLX FBVAX VBR
The US funds choice is very wide and here we will not mirror all the choices just one in each style category.
International FundsStyle Fidelity ETF World Stock
JWGRX
EFA
World Stock
OGLYX
VT
Similarly we will match one style in each category in the international asset class.
Emerging marketsStyle Fidelity ETF Emerging Markets
LZEMX
EEM
We select two emerging market ETF's to provide an alternative style.
Real EstateStyles Fidelity ETF REAL ESTATE
IYR
IYR, RWX
Real estate is under represented -- an international REIT would strengthen this asset class. We will add an international REIT Fund to the ETF's.
Fixed IncomeStyle Fidelity ETF Emerging Markets Bond
MSIEX
EMB
High Yield Bond
FHNIX
HYG
Inflation-Protected Bond
PRRIX
TIP
Intermediate-Term Bond
FBNDX
BND Intermediate-Term Bond
PTTRX
Cash
CASH
CASH Short-Term Bond
PTLDX
SHY
The fixed income class is well balanced with good choices and diversification. We match this with the exception of having a second intermediate term bond.
We are not attempting to match any of the balanced funds as there is no opportunity to use these in a standalone portfolio. While the managed funds are available, the fee structure is such that the returns are going to leak into other people's pockets and it will pay you to be on top of your own investments -- either directly or through a professional.
We now compare the returns of the two plans using tactical and asset allocation strategies with a moderate risk portfolio.Performance chart (as of Nov 19, 2010)
Performance table (as of Nov 19, 2010)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Fidelity Personal Retirement Annuity Tactical Asset Allocation Moderate 16% 113% 9% 78% 15% 115% Fidelity Personal Retirement Annuity Strategic Asset Allocation Moderate 15% 130% 4% 20% 7% 42% Fidelity-VA-Clone Tactical Asset Allocation Moderate 10% 69% 7% 58% 10% 75% Fidelity-VA-Clone Strategic Asset Allocation Moderate 12% 103% 1% 2% 5% 22%
The Variable Annuity Portfolios have a clear lead over its ETF clone. The reason for this is the larger number of funds to allow styles rotation.
In fact, to get similar performance using ETF's, you would need to go to one of the richest plans -- provided by TD Ameritrade. The comparison is below.Performance chart (as of Nov 19, 2010)
Performance table (as of Nov 19, 2010)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Fidelity Personal Retirement Annuity Tactical Asset Allocation Moderate 16% 113% 9% 78% 15% 115% Fidelity Personal Retirement Annuity Strategic Asset Allocation Moderate 15% 130% 4% 20% 7% 42% TD Ameritrade Commission Free ETFs Tactical Asset Allocation Moderate 11% 77% 12% 78% 19% 117% TD Ameritrade Commission Free ETFs Strategic Asset Allocation Moderate 8% 74% -0% -5% 7% 37%
One important note is that the returns are before fees are assessed. Variable annuities are complex instruments with fees that can be in excess of 2% of the asset base per year. Even so, the historical returns are good and there is the benefit that gains are not taxed.
Looking at the fund design for Variable Annuities can be instructive to allow you to build a plan that enables portfolios that give you good risk adjusted returns.labels:investment,
Symbols:AGG,AOK,AOM,BIV,BND,BSV,CIU,CSJ,DBC,DBE,DBN,DBR,DBT,DBU,DEM,DES,DGG,DKA,DLN,DON,DPN,DRF,DSC,DWM,EEM,EFA,EFG,EFV,ELG,ELV,EMG,EMM,EMV,EXI,EZM,GBF,GII,GMM,GWL,HYG,ICF,IGE,IJH,IJJ,IJK,IJR,IOO,IP,IPF,IPW,ITE,IVE,IVV,IVW,IWM,IWP,IWR,IWS,IWV,IWW,IWZ,IXC,IXJ,IXP,
- News Corporation -- Worldwide Presence -- Old Style Retirement
10/28/2010
News Corporation was founded in 1922 and is headquartered in New York, New York. The company operates as a diversified media company worldwide. The company's Filmed Entertainment segment produces and licenses television programming worldwide. Its Television segment develops, produces, and broadcasts television programming in Asia. The company's Cable Network Programming segment produces and licenses programming distributed through cable television systems and direct broadcast satellite operators primarily in the United States. Its Direct Broadcast Satellite Television segment distributes premium programming services via satellite and broadband directly to subscribers in Italy.
Its Newspapers and Information Services segment publishes The Times, The Sunday Times, The Sun, and News of the World national newspapers in the United Kingdom; approximately 146 newspapers in Australia; and metropolitan newspaper and a national newspaper in the United States, as well as offers various information services.
Its Other segment sells advertising, sponsorships, and subscription services on the company's various digital media; and outdoor advertising space on various media, primarily in the Russian Federation and eastern Europe. This segment also provides mobile entertainment services.
This article is part of a series of case studies we are conducting for various 401K plans. In this article, we will discuss how participants in News America (News Corp) 401k Savings Plan can achieve reasonable investment results using asset allocation strategies. We will also discuss how those portfolios are positioned in today’s market environment.This plan is the News Corp (Ticker: NWS, NWSA) 401k Savings Plan. It has Self-Directed Brokerage option for participants.
News America (News Corp) 401k Savings Plan's 401K plan consists of 8 funds. These funds enable participants to gain exposure to 3 major assets: US Equity, Foreign Equity, Fixed Income. The list of minor asset classes covered:
US EQUITY News Corporation Stock Fund Class A (nonvoting) US EQUITY News Corporation Stock Fund Class B (voting) MID-CAP VALUE Hartford Cap App Y SMALL VALUE Allianz NFJ Small Cap Value Fund Inst Intermediate-Term Bond PIMCO Total Return Institutional Foreign Large Blend DWS International Fund S LARGE BLEND Spartan US Equity Index WORLD STOCK Templeton Growth Adv Given that two of the options are company stock which is going to suffer from high volatility, the choices are somewhat restrictive and the lack of asset classes make this an old style plan.
As of Oct 26, 2010, this plan investment choice is rated as average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are . It has the following detailed ratings:Diversification -- Rated as poor (4%)
Fund Quality -- Rated as average (49%)
Portfolio Building -- Rated as average (65%)
Overall Rating: average (42%)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 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 Oct 26, 2010)Performance table (as of Oct 26, 2010)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe News America (News Corp) 401k Savings Plan Tactical Asset Allocation Moderate 7% 56% 6% 64% 10% 91% News America (News Corp) 401k Savings Plan Strategic Asset Allocation Moderate 10% 114% 3% 18% 7% 44% Three Core Asset ETF Index Funds Tactical Asset Allocation Moderate -0% -3% 2% 12% 5% 46% Three Core Asset ETF Index Funds Strategic Asset Allocation Moderate 11% 81% -0% -4% 5% 20% 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 News America (News Corp) 401k Savings Plan participants.
To summarize, News America (News Corp) 401k Savings Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. Currently, the tactical asset allocation strategy indicates overweighing on US Equity , Foreign Equity and Fixed Income funds.
labels:investment,
Symbols:VTI,EFA,VEU,AGG,BND,IVV,IYY,IWV,VV,DLN,RSP,SCHX,CIU,BIV,GWL,PFA,IOO,VT,IJJ,IWS,JKI,VOE,EMV,PWP,RFV,UVU,IJS,IWN,JKL,VBR,DSV,PWY,RZV,UVT,
- Armstrong Index Based Lazy Portfolio Returns Study
09/17/2010
Frank Armstrong, author of The Informed Investor, proposed thisportfolio for an MSN Money article. The two key points of the portfolio are that it has four asset classes (US, International, REIT, Bonds) and relies on market indices rather than active management.The portfolio uses index funds because index funds eliminate manager risk. It overweights small-cap stocks as small-cap stocks have historically outperformed large caps stocks. The portfolio has a strong value tilt, based on the theory that, over the long haul, beaten-down stocks will perform better than high-flying growth stocks.
This should be a low cost, well performing portfolio.The fund selection for testing the strategy is listed below with the ETF alternatives:- 9.25% in Vanguard Small Cap Value VISVX (SCZ)
- 9.25% in Vanguard Value VIVAX (SPY, IYY)
- 6.25% in Vanguard Small-Cap Growth VISGX (VBK)
- 6.25% in Vanguard 500 Index VFINX (IVW)
- 31% in Vanguard Total International Stock VGTSX (EFA)
- 8% in Vanguard REIT VGSIX (IYR, VNQ, RWX)
- 30% in Vanguard Short-Term Bond VBISX (BND, AGG)
Things to note about the portfolio:- This is designed as a lazy portfolio with limited rebalancing specified
- With 70% in equities, this would be considered an aggressive portfolio
- REIT is possibly underweighted
We will create historical returns of this portfolio as originally planned and then compare against strategic asset allocation (annual rebalance) and tactical asset allocation. This will measure:- The impact of equal weighting of the equities – bonds will be fixed at 30% -- SAA strategy
- The impact of actively managing the equities – bonds remain fixed at 30% -- TAA strategy
We will then introduce a four asset SIB which will give a measure of the choice of funds. The SAA and TAA strategies will give the same weights to each of the funds but use simpler asset classes funds.4 Asset SIB Breakdown with ETF alternativesLARGE BLEND VTSMX (VTI)Foreign Large Blend VGTSX (VEU)REAL ESTATE VGSIX (VNQ)Intermediate-Term Bond VBMFX (BND)The results are shown below. There are a number of interesting things to note- The closest comparison of similar strategies is the Armstrong Original versus the Armstrong SAA. The Armstrong original outperforms SAA which says that overloading the US stocks towards small value is successful
- All of the buy and hold strategies suffer from the “downturn dip” and the tactical asset allocation strategies perform much better
- The difference between the two TAA strategies is negligible
Annual Returns 1 Year 3 Years 5 Years Original 8.83 -0.88 4.27 Armstrong SAA 13.91 -2.60 2.96 Armstrong TAA 12.71 7.30 10.43 4 SIB SAA 14.12 0.25 4.59 4 SIB TAA 12.32 7.15 10.21
Takeaways:- The Armstrong portfolio is a well constructed set of diversified assets based on market indices
- To reduce volatility in today’s economy, it might make sense to add commodities and emerging market equities
- The biggest impact on returns is moving to a tactical asset allocation strategy
- The SIB portfolios which can easily be executed with ETF’s perform very well and will be low cost
labels:investment,
Symbols:DIA,IYY,VTI,DVY,ONEQ,QCLN,QABA,PWC,VTV,VUG,IWM,IWO,IWW,MDY,IJJ,IJK,VO,AGG,BND,SHY,VBK,IJS,VBR,IWP,IWS,VEA,EFG,EFV,VWO,VEU,SCZ,SPY,IYR,IVW,RWX,EFA,VNQ,Tactical,Asset,Allocation,asset,allocation,armstong,ideal,index,strategic,asset,allocation,
- How Does Your Garden Grow?
09/16/2010
Jim Lowell edits MarketWatch's ETF Trader, an investment letter employing a momentum-based exchange-traded-fund strategy for long-term investors. Large/small stocks, proposed his Sower's Growth Portfolio. This is a diversified portfolio of exchange-traded funds. The view is that a growing economy tends to create a growing portfolio.This portfolio is heavily equity and US focused. It is a diversified portfolio of exchange-traded funds including Big-caps ETF (DIAIYYONEQ PWC), Midcaps ETF(MDY), Small-caps ETF (IWM) and foreign ETF(EFA).The fund selection for testing the strategy is listed below with the ETF alternatives:
US Equities- 10% in Diamonds Trust DIA (SPY)
- 15% in iShares DJ U.S. Total Market IYY (VTI, DVY)
- 7.5% in Fidelity NASDAQ Composite ONEQ (QCLN, QABA)
- 7.5% in Power Shares Dynamic Market PWC (VTV, VUG)
- 10% in iShares Russell 2000 IWM (IWO, IWW)
- 15% in Mid Cap SPDR Trust MDY (IJJ, VO)
International Equities
- 25% in iShares MSCI International EAFE EFA (VEA, EFV)
- 10% in iShares MSCI Emerging Markets EEM (VWO)
Things to note about the portfolio:- 100% in equities is an aggressive portfolio
- 65% in US equities is high in today’s market environment
- There is no real estate (IYR, VNQ, ICF) or fixed income which would likely result in improved performance today
- With three asset classes (US, international and emerging markets), this can be mapped against a 3 asset class SIB
We will make a comparison of the performance of this portfolio against strategic asset allocation (equally spread assets), tactical asset allocation and against 3 asset class SIB portfolios we discussed in a previous article,The 3 asset class SIB breakdown- Large Blend VTSMX (ETF VTI)
- Foreign Large Blend VGTSX (ETF VEU)
- Intermediate-Term Bond VBMFX (ETF BND)
There are a number things to note about the comparisons:- The Lowell SAA and TAA were driven with a 100% in equities -- the TAA strategy will move to fixed income (cash) should the momentum drive it that way, the SAA strategy will not
- The 3 asset SIBs are using an aggressive model portfolio that still includes some fixed income
Summary Returns of Lowell's Portfolios Annual Returns 1 year 3 Year 5 Year Lowell Original 9.04 -5.38 2.25 Lowell SAA 13.14 -13.6 1.83 Lowell TAA 6.23 5.26 13.26 3 SIB SAA 7.03 -3.39 3.29 3 SIB TAA -4.23 0.63 5.76
The results are shown above. There are a number of interesting things to note :- The choice of funds, even if diversification enables reasonable returns
- Before the downturn, the original portfolio was outperforming everything except the dynamic allocation of the original strategy
- The strategy falls foul of the 2008/2009 downturn and tracks pretty closely with any buy and hold strategy
- The three asset SIBs have a fixed income fund that enables slightly better performance in choppier market conditions
- The Lowell choice of funds allows the tactical asset allocation strategy to outperform the three asset class SIB with TAA
- The 2008/2009 downturn shows the benefits of a tactical asset allocation – even if it means moving equities to cash
Takeaways:- The Sower’s growth portfolio is a low maintenance portfolio that is heavily weighted towards US equities. In the long term, there is still confidence in the US economy but following this portfolio and strategy will give you some heartache
- This portfolio was created when the sort of downturn we experienced in 2007/2008 was not envisioned -- it's hard to imagine that this portfolio would still be recommended today
- Migrating to a dynamic strategy with the same funds provides much higher returns. Given a dynamic strategy, it would make sense to add some fixed income such as AGG, BND, SHY, CSJ rather than just cash
- Conventional tactical asset allocation with the right number of asset classes (at least five) still provides the best performance
- ETF’s give you a good degree of choice a good vehicle for any portfolio and with increasing track record, it’s possible to demonstrate good historical performance
labels:investment,
Symbols:DIA,IYY,VTI,DVY,ONEQ,QCLN,QABA,PWC,VTV,VUG,IWM,IWO,IWW,MDY,IJJ,IJK,VO,AGG,BND,SHY,SPY,VBK,IJS,IWP,IWS,VEA,EFG,EFV,VWO,VEU,ETF,Asset,Allocation,Tactical,Asset,Allocation,
- Investing with Styles Can Pay off
07/09/2010
Portfolio construction consists of the following steps
- Decide personal risk profile which determines the target allocation in risk assets.
- Decide asset allocation method: strategic or tactical or both (strategic does not change target asset allocations while tactical can alter allocations more actively)
- Decide target allocation for each asset in a strategic asset allocation
- Periodically rebalancing portfolios
For a portfolio using strategic asset allocation, with long term target allocation being fixed (and only changed when major events such as approaching to retirement and children college education spending, for example), one can further enhance a portfolio return and reduce the risk by rebalancing and fund selection in an asset class. It is reported that adopting proper timing and way to rebalance a portfolio can improve return and reduce risk (see Daryanani opportunitstic rebalancing article). In this article, we focus on fund selection.
In a well designed portfolio for retirement plans (401K or IRA), it is a popular practice to have funds with various style exposures. In a stock/equity asset, a fund style is defined as value style (growth/blend/value) and size style (large/mid/small cap). The Morningstar 9 boxes of styles are essentially the combinations of the 3 value and 3 size styles. In a fixed income asset, a fund style is a combination of credit risk (junk/investment grade) and interest rate risk (short/intermediate/long) for corporate bonds or a just interest rate risk for treasury bonds. In an actively managed portfolio, it is a well recognized and widely practiced method to select funds based on style rotation to improve a portfolio alpha or return. For example, in an article published in Journal of Asset Management (May, 2007), B. Arshanapalli , L. Switzer and K. Panju concluded that active multi-style rotation strategies can be devised to outperform the best performing buy-and-hold portfolio.
MyPlanIQ maintains an index fund based plan or an ETF based plan using candidate funds based on those in a lazy portfolio proposed by Fund Advice Paul Merriman and maintained by MarketWatch.com (called Fund Advice Ultimate Buy and Hold Portfolio) (see here for the independently tracked portfolio on MyPlanIQ.com). The candidate funds and the original allocation are as follows
Index ETF Allocation Vanguard Interm-Tm Trs (VFITX) iShares 3-7 Year Treasury (IEI) 20% Vanguard Short-Tm Trs(VFISX) iShares 3-7 Year Treasury (SHY) 12% Vanguard Intl Val (VTRIX) iShares MSCI EAFE Value Index (EFV) 12% Vanguard Dev Mkts (VDMIX) iShares MSCI EAFE Index (EFA) 12% Vanguard Inflation-Prot (VIPSX) iShares TIPS Bond (TIP) 8% Vanguard Small-Cap Idx (NAESX) iShares Russell 2000 Index (IWM) 6% Vanguard Small-Cap Val (VISVX) iShares Russell 2000 Value Index (IWN) 6% Vanguard Value Idx (VIVAX) iShares Russell 3000 Value Index (IWW) 6% Vanguard 500 Index (VFINX) SPDR S&P 500 (SPY) 6% Vanguard Emerging Mkt (VEIEX) iSharess Emerging Market Stock (EEM) 6% Vanguard REIT Idx (VGSIX) iShares Dow Jones REIT Index (IYR) 6% The funds cover five asset classes: U.S. Equity, International Equity, Emerging Mkt Equity, U.S. REIT and Fixed Income. They have various style exposures for U.S. stock market (equity), International Stocks and Fixed income.
MyPlanIQ Strategic Asset Allocation (SAA) selects funds with the best risk adjusted returns for each asset class when rebalancing. The following table compares the Strategic Asset Allocation (SAA) moderate portfolios in both index fund and ETF plans as well as the original portfolio (both MyPlanIQ SAA moderate portfolios have 40% allocation in fixed income). We also include the strategic asset allocation moderate portfolio in MyPlanIQ Five Core Asset ETF Plan that consists one fund for each asset class.
As of 7/2/2010
Portfolio 1 Yr Return 3 Yr Return 5 Yr Return Since 12/2000 FundAdvice SAA Moderate Index Funds 17% -1.0% 5.1% 7.4% FundAdvice SAA Moderate ETF 16.7% -2.2% 4.8% 7% FundAdvice Buy and Hold Index Funds 14.5% -2.4% 4.1% 5.7% Five Core SAA Moderate 16.9% -3.4% 3.93% 5.6% From the above table, we can observe:
- Diversification over styles improves return (FundAdvice Buy and Hold vs. Five Core SAA Moderate).
- Style rotation adds 1.3-1.7% returns over buy and hold (SAA Moderate ETF or Index Funds vs. FundAdvice Buy and Hold).
The above observations are consistent across thousands of plans MyPlanIQ maintains. We should also point out that better fund/style selection does not alter the overall portfolio risk allocation, which is a major advantage over an actively managed tactical asset allocation portfolio.
At the moment, for U.S. stocks, MyPlanIQ SAA favors small cap (IWM), small cap value (IWN). For fixed income, it favors Inflation-protected treasury (TIP).
labels:investments,IRA,401K,
Symbols:vti,spy,veu,efa,vwo,eem,iyr,icf,vnq,dbc,gsg,bnd,agg,tlt,lqd,tip,iwb,oef,iwd,iwo,iwm,ijr,iwn,iwp,iwr,ijh,iws,dvy,iwc,efv,iww,iwv,iwz,VFITX,VFISX,VTRIX,VDMIX,VIPSX,NAESX,VISVX,VIVAX,VFINX,VEIEX,VGSIX,
- Abercrombie Fitch Co. Savings and Retirement Plan Report On 12/03/2010
12/03/2010
This report reviews Abercrombie Fitch Co. Savings and Retirement Plan plan. We will discuss the investment choices and present the plan rating by MyPlanIQ. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how participants in Abercrombie Fitch Co. Savings and Retirement Plan can achieve reasonable investment results using asset allocation strategies.
Plan Review and Rating
--
Abercrombie Fitch Co. Savings and Retirement Plan's 401K plan consists of 24 funds. These funds enable participants to gain exposure to 3 major assets: US Equity, Foreign Equity, Fixed Income. The list of minor asset classes covered:
Foreign Large Growth: EFG
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
Mid-cap Value: IJJ, IWS, JKI, VOE, EMV, PWP, RFV, UVU
Moderate Allocation: AOM
Retirement Income:
Small Growth: IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK
Small Value: IJS, IWN, JKL, VBR, DSV, PWY, RZV, UVT
Target Date 2000-2010: TZD
Target Date 2011-2015: TZE
Target Date 2016-2020: TZG
Target Date 2021-2025: TZI
Target Date 2026-2030: TZL
Target Date 2031-2035: TZO
Target Date 2036-2040: TZV
Target Date 2041-2045:
Target Date 2050+:
As of Dec 2, 2010, this plan investment choice is rated as 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 (11%)
Fund Quality -- Rated as (40%)
Portfolio Building -- Rated as (59%)
Overall Rating: (39%)Current Economic and Market Conditions
We have experienced an uncertain 2010: plenty of worries on whether the US economy will climb out of the great recession and recover.
- The Federal Reserve embarked on Quantitative Easing II (QE2) to stimulate the economy.
- The housing market is still at its low but largely stabilized.
- The unemployment rate is stuck at 9%.
Americans continue to face an uncertain future, given (among others) the high unemployment rate, large federal and local government debts and global trade imbalance. With such an economic backdrop, the stock and debt markets are going to be volatile. Despite this, markets have been resilient and appear positioned to rebound.
In this market it is even more critical to properly diversify and respond market changes. MyPlanIQ offers two asset allocation strategies: strategic and tactical asset allocation strategies ( SAA and TAA for participants in Abercrombie Fitch Co. Savings and Retirement Plan).
Strategic Asset Allocation is based on well known modern portfolio theory and its key features include: diversification, proper fund selection and periodically re-balancing.
Tactical Asset Allocation works on a diversified array of assets provided by funds in a plan and adjusts asset mixes based on market conditions such as asset price momentum utilized by TAA.
Portfolio Discussions
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 Dec 2, 2010)Performance table (as of Dec 2, 2010)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Abercrombie Fitch Co. Savings and Retirement Plan Tactical Asset Allocation Moderate 7% 59% 6% 70% 8% 79% Abercrombie Fitch Co. Savings and Retirement Plan Strategic Asset Allocation Moderate 9% 106% 2% 11% 6% 37% Three Core Asset ETF Index Funds Tactical Asset Allocation Moderate -4% -35% 1% 9% 4% 27% Three Core Asset ETF Index Funds Strategic Asset Allocation Moderate 9% 60% -0% -3% 4% 13% 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 Abercrombie Fitch Co. Savings and Retirement Plan participants.
To summarize, Abercrombie Fitch Co. Savings and Retirement Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.
Symbols: ANF , SPY , VTI , EFA , VEU , AGG , BND , AOM , CIU , BIV , EFG , IVE , IWW , JKF , VTV , ELV , PWV , RPV , SCHV , TZD , TZE , TZG , TZI , TZO , TZL , TZV , IVV , IYY , IWV , VV , DLN , RSP , SCHX , IVW , IWZ , JKE , VUG , ELG , QQQQ , RPG , SCHG , IJJ , IWS , JKI , VOE , EMV , PWP , RFV , UVU , IJS , IWN , JKL , VBR , DSV , PWY , RZV , UVT , IJT , IWO , JKK , VBK , DSG , PWT , RZG , UKK
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