American Electric

12/19/2010 Share 0 comments

American Electric Power is one of the largest electric utilities in the United States, delivering electriciity to more than 5 million customers in 11 states.

AEP ranks among the nation's largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the U.S. AEP also owns the nation's largest electricity transmission system, a nearly 39,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

Plan Review and Rating

AMERICAN ELECTRIC POWER SYSTEM RETIREMENT SAVINGS PLAN's 401K plan consists of 526 funds. These funds enable participants to gain exposure to 6 major assets: US Equity, Commodity, Foreign Equity, Emerging Market Equity, REITs, Fixed Income. The list of minor asset classes covered:

Bank Loan:
Bear Market:
Commodities: GSG, DBC
Commodities Broad Basket: GSG, DBC
Communications: IXP, PTE, DGG, LTL
Conservative Allocation: AOK
Consumer Discretionary: RXI, VCR
Consumer Staples: KXI, VDC, PSL, DPN, RHS
Currency:
Diversified Emerging Mkts: EEM, GMM, PXH, DEM, SCHE
Diversified Pacific/asia: EPP, VPL, GMF, PAF
Emerging Markets Bond: PCY
Equity Energy: ITE, IXC, IPW, DBE, RYE, DKA
Equity Precious Metals: DBP
Europe Stock: IEV, VGK, PEF, DEB
Financial: IYF, VFH, IPF, PFI, DRF, RYF
Foreign Large Blend: EFA, VEU, GWL, PFA
Foreign Large Growth: EFG
Foreign Large Value: EFV, PID, DWM
Foreign Small/mid Growth: IFSM, VSS, SCHC
Foreign Small/mid Value: SCZ
Global Real Estate: IFGL, RWX
Health: IYH, IXJ, VHT, XBI, PBE, DBR, RYH
High Yield Bond: HYG, JNK, PHB
Industrials: IYJ, EXI, VIS
Inflation-protected Bond: TIP
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
Latin America Stock: ILF, GML
Long Government: TLT, TLH, IEF, EDV, VGLT, TLO, PLW
Long-short:
Long-term Bond: CLY, LQD, BLV, VCLT
Mid-cap Blend: IJH, IWR, JKG, VO, MDY, EMM, PJG, DON, EZM, MVV
Mid-cap Growth: IJK, IWP, VOT, EMG, PWJ, RFG, UKW
Mid-cap Value: IJJ, IWS, JKI, VOE, EMV, PWP, RFV, UVU
Miscellaneous Sector:
Moderate Allocation: AOM
Multisector Bond: AGG, GBF, BND, LAG
Muni National Interm: ITM
Natural Resources: IYM, IGE, VAW, XLB, XME, PYZ, DBN, RTM, UYM
Pacific/asia Ex-japan Stk: EPP, AAXJ, GMF, PAF, DND
Real Estate: IYR, ICF, VNQ
Short Government: SHY, SHV, VGSH, PLK, USY
Short-term Bond: CSJ, BSV, VCSH
Small Blend: IJR, IWM, JKJ, VB, DSC, PJM, DES, SAA, UWM, SCHA
Small Growth: IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK
Small Value: IJS, IWN, JKL, VBR, DSV, PWY, RZV, UVT
Target Date 2011-2015: TZE
Target Date 2016-2020: TZG
Target Date 2036-2040: TZV
Technology: MTK, PTF, DBT, RYT, ROM
Us Equity: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX
Utilities: GII, PUI, DBU, RYU, UPW
World Allocation: AOR, AOA
World Bond: IGOV, BWX, WIP
World Stock: IOO, VT

This is an extraordinary large plan with a bewildering number of funds. This plan is almost unique in terms of the number of funds available. Six asset classes is great and, if you can find the good funds (and there will likely be always a few funds performing well in over 500), you can get good results. However, the number is huge.

As of Dec 16, 2010, 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 (96%)
Fund Quality -- Rated as below average (19%)
Portfolio Building -- Rated as above average (75%)
Overall Rating: average (64%)

Current Economic and Market Conditions

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 AMERICAN ELECTRIC POWER SYSTEM RETIREMENT SAVINGS 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 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
Commodity: DBC
Foreign Equity: EFA or VEU
REITs: IYR or VNQ or ICF
Emerging Market Equity: EEM or VWO
Fixed Income: AGG or BND

Performance chart (as of Dec 16, 2010)

Performance table (as of Dec 16, 2010)

Currently US Equity, Commodities and Emerging Market are doing well. US Equity, Commodities and Emerging Market are available to AMERICAN ELECTRIC POWER SYSTEM RETIREMENT SAVINGS PLAN participants.

To summarize, AMERICAN ELECTRIC POWER SYSTEM RETIREMENT SAVINGS PLAN plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.

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