FEDEX Doesn't Deliver on It's Retirement Plan

01/07/2011 Share 0 comments

FedEx Corporation (FDX) provides transportation, e-commerce, and business services in the United States and internationally. It operates in four segments: FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services. The company was founded in 1971 and is headquartered in Memphis, Tennessee.

We report on the FedEx 401K Plan for Pilots. We discuss investment choices and present plan rating. Their plan consists of 23 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:
Conservative Allocation: AOK
Foreign Large Blend: EFA, VEU, GWL, PFA
Foreign Large Value: EFV, PID, DWM
Inflation-protected Bond: TIP
Intermediate-term Bond: AGG, CIU, BIV, BND
Large Blend: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX
Large Value: IVE, IWW, JKF, VTV, ELV, PWV, RPV, SCHV
Mid-cap Blend: IJH, IWR, JKG, VO, MDY, EMM, PJG, DON, EZM, MVV
Moderate Allocation: AOM
Retirement Income:
Small Blend: IJR, IWM, JKJ, VB, DSC, PJM, DES, SAA, UWM, SCHA
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+:

With a large number of balanced or target date funds, participants don't have a great deal of freedom to build a high performance portfolio using asset allocation. The number of funds in the US asset class is fine, foreign equity is OK but there should be more funds in fixed income and, ideally, at least one more asset class. The plan rating will reflect this.

As of Jan 5, 2011, this plan investment choice is rated as below 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 below average (15%)
Fund Quality -- Rated as average (43%)
Portfolio Building -- Rated as average (40%)
Overall Rating: below average (33%)

Current Economic and Market ConditionsAmericans 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.

2010 ended very strongly for US equities. Going forward, it is going to be increasingly important to have a wide range of asset classes including commodities and real estate as inflation is likely to creep in as US government intervention in the economy has to be funded.

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 the FEDEX 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 ETF equivalents:

US Equity: SPY or VTI
Foreign Equity: EFA or VEU
Fixed Income: AGG or BND
Performance chart (as of Jan 5, 2011)

Performance table (as of Jan 5, 2011)

Currently Commodities, US Equity and Emerging Market are doing well. Only US Equity is available to Federal Express plan participants.

This plan beats the three asset benchmark by virtue of the US asset class choices. If would be a stronger plan with more fixed income choices and an additional asset class.

To summarize, FedEx 401K Plan participants can achieve the best investment returns by adopting asset allocation strategies that are tailored to their risk profiles.

Federal Express  would do well by their employees to consider reviewing their existing funds and adding an additional asset class.

labels:investment,

Symbols:FDX,SPY,VTI,EFA,VEU,EEM,VWO,AGG,BND,HYG,JNK,PHB,AOM,CIU,BIV,MTK,PTF,RYT,ROM,GWL,PFA,IVE,IWW,JKF,VTV,PWV,RPV,SCHV,EFV,PID,DWM,IVV,IYY,IWV,VV,DLN,RSP,SCHX,IVW,IWZ,JKE,VUG,QQQQ,RPG,SCHG,IJJ,IWS,JKI,VOE,PWP,RFV,UVU,IJH,IWR,JKG,VO,MDY,EMM,PJG,DON,EZM,MVV,