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  • Goldman Sachs Brings Asset Allocation Savvy to Its 401K Plan

    06/03/2011

    Retirement investing is a long term process. This report reviews The Goldman Sachs 401(k) 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 investors in The Goldman Sachs 401(k) Plan can achieve reasonable investment results using asset allocation strategies.

    Plan Review and Rating

    As one of the largest investment banks in the world, Goldman Sachs (GS) does give its employees ample diversification opportunities. The plan consists of 36 funds. These funds enable participants to gain exposure to 6 major assets: US Equity, Foreign Equity, Commodity, Emerging Market Equity, REITs, Fixed Income.

    As of Jun 2, 2011, this plan investment choice is rated as 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 great (100%) 
    Fund Quality -- Rated as below average (14%) 
    Portfolio Building -- Rated as average (52%) 
    Overall Rating: average (55%)

    It is a bit surprising that the plan's fund quality is rated below average. In the plan, other than the low cost index funds, it provides many Goldman Sachs funds such as Goldman Sachs Asset Management L.P./Structured US Equity Fund (GSELX). This could possibly help your own fund business with the expense of lower qualities. We don't know what cost the plan is charged for these funds. 

    Current Economic and Market Conditions

    As we are clearly entering a seasonally weak period for risk assets, global economies have clearly slowed down. Recently released Case-Shiller housing index showed that the U.S. is now in a double dip state for housing prices. Unemployment rate has been stuck at 9% level. Additional indicators such as conference board consumer confidence index and Chicago ISM index are all pointing to a slow down in the summer season.

    Amid a string of bad economic news, risk assets have come down a bit, though they are still ranked high at the moment. Long term treasury bonds, however, have shot up in the anticipation of weakened economy. The following table shows the major asset class ranking in terms of their momentum.

     

     

    Assets ClassSymbols05/27
    Trend
    Score
    05/20
    Trend
    Score
    Direction
    International REITs RWX 11.77% 10.82% ^
    Commodities DBC 10.84% 10.32% ^
    US Equity REITs VNQ 10.77% 10.41% ^
    Gold GLD 9.42% 10.06% v
    Emerging Market Stks VWO 8.56% 6.72% ^
    US Stocks VTI 8.29% 8.23% ^
    International Developed Stks EFA 6.77% 5.23% ^
    US High Yield Bonds JNK 6.37% 6.37% v
    International Treasury Bonds BWX 5.96% 4.66% ^
    Frontier Market Stks FRN 4.05% 4.27% v
    Emerging Mkt Bonds PCY 3.57% 4.27% v
    Intermediate Treasuries IEF 2.71% 2.39% ^
    US Credit Bonds CFT 2.5% 2.81% v
    Municipal Bonds MUB 2.13% 2.0% ^
    Total US Bonds BND 1.99% 1.92% ^
    Mortgage Back Bonds MBB 1.75% 1.8% v
    Treasury Bills SHV 0.07% 0.02% ^     

     

    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 6 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 
    Commodity: DBC 
    Emerging Market Equity: EEM or VWO 
    REITs: IYR or VNQ or ICF 
    Fixed Income: AGG or BND 

    Performance chart (as of Jun 2, 2011)

    Performance table (as of Jun 2, 2011)

     

    Portfolio Name1Yr AR1Yr Sharpe3Yr AR3Yr Sharpe5Yr AR5Yr Sharpe
    The Goldman Sachs 401(k) Plan Tactical Asset Allocation Moderate 12% 113% 9% 70% 13% 98%
    The Goldman Sachs 401(k) Plan Strategic Asset Allocation Moderate 17% 214% 1% 5% 5% 30%
    Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate 14% 141% 8% 64% 13% 92%
    Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate 20% 188% 3% 16% 7% 36%

    From the above table, one can see that the plan is comparable with six core asset benchmark. 

    To summarize, participants in The Goldman Sachs 401(k) Plan can achieve very reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. This plan provides adquate diversification but can be improved by working on fund qualities. 

    Symbols: GS, ^RUT, MLM, VTI, VEU, VWO, VNQ, DBC, BND, STLEX, SVSPX, VUSTX, VIGIX, VIVIX, VIMSX, SSEMX, VIPSX, STLAX, STLBX, WFBIX, STLCX, STLDX, STLFX, GMCFX, GSTGX, WACPX, GSELX, GCMAX, GSHTX, GSCGX, GSLAX, GSFIX, GGOIX, GREIX, QRAAX, PIGLX, SVRIX Exchange Tickers: (GS), (^RUT), (CASH), (MLM), (VTI), (VEU), (VWO), (VNQ), (DBC), (BND), (STLEX), (SVSPX), (VUSTX), (VIGIX), (VIVIX), (VIMSX), (SSEMX), (VIPSX), (STLAX), (STLBX), (WFBIX), (STLCX), (STLDX), (STLFX), (GMCFX), (GSTGX), (WACPX), (GSELX), (GCMAX), (GSHTX), (GSCGX), (GSLAX), (GSFIX), (GGOIX), (GREIX), (QRAAX), (PIGLX), (SVRIX)

     

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  • REIT and Commodities In Simple Six Fund Portfolio Shows Up Aronson's Lazy Portfolio

    04/20/2011

    The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair, dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

    We continue to examine luminary portfolios to see what we can learn and use to further our investment portfolios.

    Ted Aronson and his AJO Partners manage about $25 billion of institutional assets. Aronson puts his family's taxable money in this well-diversified portfolio of no-load index funds.

    Fund Weight Ticker ETF
    US Equities 40% VFINX, VEXMX, VISGX, VTSMX, VISXX VTI, TMW, VBK, VBR
    International Equity 20% VPACX, VEURX VEA
    Emerging Markets 10% VEIEX EEM
    US Bonds 30% VIPSX, VUSTX, VWEHX TIP, LQD, HYG

    This is a well diversified four asset class portfolio with an aggressive profile. The US equities are broadly diversified. Asia Pacific is put above Europe for developed markets. There is a diversified set of fixed income with VWEHX and VUSTX being relatively high risk. The long term treasury bond has proved to be a good diversifier in recent history -- today all bonds are under pressure so this may be less true.

    The US component is possibly over-weighted and emerging markets could be increased or, even better, some real estate assets could be added.

    This portfolio was last reviewed at the end of the year and we now re-examine performance over the last three months as we see markets changing and inflation becoming more of a present reality.

    This lazy portfolio will be compared with six asset class SIB to examine the returns of four and six asset class portfolios


    Portfolio Performance Comparison

    Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    Aronson Original
    6% 74% 2% 14% 3% 16%
    Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate
    10% 71% 9% 73% 13% 91%
    Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate
    13% 103% 3% 20% 7% 35%

    full comparison

    The Aronson portfolio has four asset classes missing out on REIT and commodities. The performance over the last five years has not been exceptional with the Simple SIB able to beat it across the board.

    Over the last three months, REIT and commodities have been in favor and having neither has had an impact on the Aronson returns.

    Takeaways
    • The Aronson lazy portfolio has moderate returns that can be beaten
    • Having broader diversification pays off as market conditions change
    • ETFs can readily be used to implement these portfolios with good performance
    • A 10% spread over five years means that it’s worth looking at alternatives
    Disclosure:

    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.
    The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair, dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

     
    Exchange Tickers:  (NYSE: VFINX), (NYSE: VEXMX), (NYSE: VISGX), (NYSE: VTSMX), (NYSE: VISXX), (NYSE: VTI), (NYSE: TMW), (NYSE: VBK), (NYSE: VBR), (NYSE: VPACX), (NYSE: VEURX), (NYSE: VEA), (NYSE: VEIEX), (NYSE: EEM), (NYSE: VIPSX), (NYSE: VUSTX), (NYSE: VWEHX), (NYSE: TIP), (NYSE: LQD), (NYSE: HYG)

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  • REIT and Commodities In Simple Six Fund Portfolio Shows Up Aronson's Lazy Portfolio

    04/19/2011

    The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair, dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

    We continue to examine luminary portfolios to see what we can learn and use to further our investment portfolios.

    Ted Aronson and his AJO Partners manage about $25 billion of institutional assets. Aronson puts his family's taxable money in this well-diversified portfolio of no-load index funds.

    Fund Weight Ticker ETF
    US Equities 40% VFINX, VEXMX, VISGX, VTSMX, VISXX VTI, TMW, VBK, VBR
    International Equity 20% VPACX, VEURX VEA
    Emerging Markets 10% VEIEX EEM
    US Bonds 30% VIPSX, VUSTX, VWEHX TIP, LQD, HYG

    This is a well diversified four asset class portfolio with an aggressive profile. The US equities are broadly diversified. Asia Pacific is put above Europe for developed markets. There is a diversified set of fixed income with VWEHX and VUSTX being relatively high risk. The long term treasury bond has proved to be a good diversifier in recent history -- today all bonds are under pressure so this may be less true.

    The US component is possibly over-weighted and emerging markets could be increased or, even better, some real estate assets could be added.

    This portfolio was last reviewed at the end of the year and we now re-examine performance over the last three months as we see markets changing and inflation becoming more of a present reality.

    This lazy portfolio will be compared with six asset class SIB to examine the returns of four and six asset class portfolios


    Portfolio Performance Comparison

    Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    Aronson Original
    6% 74% 2% 14% 3% 16%
    Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate
    10% 71% 9% 73% 13% 91%
    Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate
    13% 103% 3% 20% 7% 35%

    full comparison

    The Aronson portfolio has four asset classes missing out on REIT and commodities. The performance over the last five years has not been exceptional with the Simple SIB able to beat it across the board.

    Over the last three months, REIT and commodities have been in favor and having neither has had an impact on the Aronson returns.

    Takeaways
    • The Aronson lazy portfolio has moderate returns that can be beaten
    • Having broader diversification pays off as market conditions change
    • ETFs can readily be used to implement these portfolios with good performance
    • A 10% spread over five years means that it’s worth looking at alternatives
    Disclosure:

    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.
    The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair, dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

     

    Exchange Tickers:  (NYSE: VFINX), (NYSE: VEXMX), (NYSE: VISGX), (NYSE: VTSMX), (NYSE: VISXX), (NYSE: VTI), (NYSE: TMW), (NYSE: VBK), (NYSE: VBR), (NYSE: VPACX), (NYSE: VEURX), (NYSE: VEA), (NYSE: VEIEX), (NYSE: EEM), (NYSE: VIPSX), (NYSE: VUSTX), (NYSE: VWEHX), (NYSE: TIP), (NYSE: LQD), (NYSE: HYG)

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  • David Swensen's Six Asset Investment Plan

    06/09/2010

    David Swensen, the Yale Endowment Manager, proposed this one size fit in all model portfolio for individual investors. The major difference between this portfolio and other conventional portfolios is that it emphasizes international equities (including emerging market equities) as well as real estate investment. Compared with various diversified portfolios, an interesting asset class missing is the commodities, which has been considered to be an excellent anti-inflation diversifier. This is complemented with its emphasis on the inflation-protected treasury bonds. In the model portfolio constructed, we assume annual rebalance although Swensen actually pointed out that in Yale's institutional portfolio, they rebalanced daily, which, by his estimate, gave about 1-2% of excessive returns vs. annual rebalancing.

    Compared with the Simpler Is Better (SIB) portfolios we discussed in the previous article, Swensen excluded commodities while putting emphasis on using fixed income for the purposes of inflation protection and portfolio hedging. Since commodities ETFs and index funds are still problematic (see this article), Swensen's six assets are the most investable assets.

    Note: it has been confusing whether Swensen advocated using long term treasury bonds or just an average duration treasury bonds. In his book Unconventional Success: A Fundamental Approach to Personal Investment, he wrote "The purity of noncallable, long-term, default-free Treasury bonds provides the most powerful diversification to investor portfolios". Based on this sentence, it has been interpreted that he meant to use the long term treasury bond. However, recently, a reader posted a reply from David Swensen on this question in morningstar.com that indicates the average duration of treasury bonds.

    The portfolio consists of the following:

    • 30% in Vanguard Total Stock Market Index (VTSMX or Vanguard ETF VTI)
    • 20% in Vanguard REIT Index (VGSIX or Vanguard ETF VNQ)
    • 20% in Vanguard Total International Stock (VGTSX) or (15% in VGTSX or Vanguard ETF VEU and 5% in VEIEX or Vanguard ETF VWO)
    • 15% in Vanguard Inflation Protected Securities (VIPSX or iShares Tip TIP)
    • 15% in Vanguard Long Term Treasury Index (VUSTX or iShares TLT or Vanguard ETF EDV)

    We have constructed both index fund based and ETF based plans using the above funds. Model portfolios using MyPlanIQ Strategic Asset Allocation (SAA) and Tactical Asset Allocation (TAA) are generated. The following compares the Swensen's portfolio with SAA moderate and TAA moderate model portfolios.  Since the ETF based plan has shorter history, we present here the index fund based portfolios.


    SAA moderate model portfolio differs from Swensen's portfolio in both its target allocation and rebalancing frequency. SAA moderate is equally weighted among risky assets US Equity, International and Emerging Market Equity. It rebalances monthly whenever an asset weight deviates 20% from the target weight. The Swensen's rebalances annually.  This, along with the proper selection between VIPSX and VUSTX in the fixed income portion, contributes to the outperformance over the Swensen's portfolio. TAA has the best performance as it used asset momentum to rotate out of risky equity assets and avoided big loss in 2008 and early 2009.

    The following table shows its performance from 12/31/2000 to 6/7/2010.

      1 Yr 3 Yr 5 Yr Inception
    Annualized Return (%) 16.56 7.72 11.2 11.32
    Sharpe Ratio (%) 107.23 55.36 84.95 103.24

    In conclusion, David Swensen's six assets are the most investable core assets with which main stream asset allocation strategies can be used to achieve reasonable investment results.


    labels:investment,ETF,

    Symbols:spy,efa,eem,iyr,dbc,agg,vti,veu,vwo,vnq,bnd,icf,gsg,vt,wfvk,VTSMX,VGSIX,VGTSX,VIPSX,VUSTX,

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  • The Goldman Sachs 401(k) Plan Report On 06/03/2011

    06/03/2011

    Retirement investing is a long term process. This report reviews The Goldman Sachs 401(k) 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 investors in The Goldman Sachs 401(k) Plan can achieve reasonable investment results using asset allocation strategies.

    Plan Review and Rating

    As one of the largest investment banks in the world, Goldman Sachs (GS) does give its employees ample diversification opportunities. The plan consists of 36 funds. These funds enable participants to gain exposure to 6 major assets: US Equity, Foreign Equity, Commodity, Emerging Market Equity, REITs, Fixed Income.

    As of Jun 2, 2011, this plan investment choice is rated as 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 great (100%)
    Fund Quality -- Rated as below average (14%)
    Portfolio Building -- Rated as average (52%)
    Overall Rating: average (55%)

    It is a bit surprising that the plan's fund quality is rated below average. In the plan, other than the low cost index funds, it provides many Goldman Sachs funds such as Goldman Sachs Asset Management L.P./Structured US Equity Fund (GSELX). This could possibly help your own fund business with the expense of lower qualities. We don't know what cost the plan is charged for these funds. 

    Current Economic and Market Conditions

    As we are clearly entering a seasonally weak period for risk assets, global economies have clearly slowed down. Recently released Case-Shiller housing index showed that the U.S. is now in a double dip state for housing prices. Unemployment rate has been stuck at 9% level. Additional indicators such as conference board consumer confidence index and Chicago ISM index are all pointing to a slow down in the summer season.

    Amid a string of bad economic news, risk assets have come down a bit, though they are still ranked high at the moment. Long term treasury bonds, however, have shot up in the anticipation of weakened economy. The following table shows the major asset class ranking in terms of their momentum.


    Assets Class Symbols 05/27
    Trend
    Score
    05/20
    Trend
    Score
    Direction
    International REITs RWX 11.77% 10.82% ^
    Commodities DBC 10.84% 10.32% ^
    US Equity REITs VNQ 10.77% 10.41% ^
    Gold GLD 9.42% 10.06% v
    Emerging Market Stks VWO 8.56% 6.72% ^
    US Stocks VTI 8.29% 8.23% ^
    International Developed Stks EFA 6.77% 5.23% ^
    US High Yield Bonds JNK 6.37% 6.37% v
    International Treasury Bonds BWX 5.96% 4.66% ^
    Frontier Market Stks FRN 4.05% 4.27% v
    Emerging Mkt Bonds PCY 3.57% 4.27% v
    Intermediate Treasuries IEF 2.71% 2.39% ^
    US Credit Bonds CFT 2.5% 2.81% v
    Municipal Bonds MUB 2.13% 2.0% ^
    Total US Bonds BND 1.99% 1.92% ^
    Mortgage Back Bonds MBB 1.75% 1.8% v
    Treasury Bills SHV 0.07% 0.02% ^     


    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 6 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
    Commodity: DBC
    Emerging Market Equity: EEM or VWO
    REITs: IYR or VNQ or ICF
    Fixed Income: AGG or BND

    Performance chart (as of Jun 2, 2011)

    Performance table (as of Jun 2, 2011)

    From the above table, one can see that the plan is comparable with six core asset benchmark. 

    To summarize, participants in The Goldman Sachs 401(k) Plan can achieve very reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. This plan provides adquate diversification but can be improved by working on fund qualities. 

    Symbols:GS, ^RUT, MLM, VTI, VEU, VWO, VNQ, DBC, BND, STLEX, SVSPX, VUSTX, VIGIX, VIVIX, VIMSX, SSEMX, VIPSX, STLAX, STLBX, WFBIX, STLCX, STLDX, STLFX, GMCFX, GSTGX, WACPX, GSELX, GCMAX, GSHTX, GSCGX, GSLAX, GSFIX, GGOIX, GREIX, QRAAX, PIGLX, SVRIX

    Exchange Tickers: (GS), (^RUT), (CASH), (MLM), (VTI), (VEU), (VWO), (VNQ), (DBC), (BND), (STLEX), (SVSPX), (VUSTX), (VIGIX), (VIVIX), (VIMSX), (SSEMX), (VIPSX), (STLAX), (STLBX), (WFBIX), (STLCX), (STLDX), (STLFX), (GMCFX), (GSTGX), (WACPX), (GSELX), (GCMAX), (GSHTX), (GSCGX), (GSLAX), (GSFIX), (GGOIX), (GREIX), (QRAAX), (PIGLX), (SVRIX)

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