How Money Manager Franklin Templeton Selects Funds for Its Employee Profit Sharing 401K Plan
08/13/2011 0 comments
Franklin Resources Inc. is a publicly owned investment manager. The firm provides its services to individuals, institutions, pension plans, trusts, and partnerships. Franklin Resources, Inc was founded in 1947 and is based in San Mateo, California. Franklin Templeton specializes in mutual fund management.
It is thus interesting to see how Franklin designs its Franklin Templeton Profit Sharing 401(k) Plan that is used by its employees for their retirement investing.
Their 401K plan consists of 31 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, Emerging Market Equity, Fixed Income.
Asset Class | Ticker | Name |
---|---|---|
ROOT | CASH | CASH |
Intermediate-Term Bond | GSNIX | Goldman Sachs Core Plus Fixed Income I |
LARGE GROWTH | FGSRX | Franklin Growth R |
LARGE GROWTH | FEACX | Franklin Capital Growth Adv |
LARGE GROWTH | FRCGX | Franklin Flex Cap Growth R |
Mid-Cap Growth | FKARX | Franklin Growth Opportunities R |
High Yield Bond | FHIRX | Franklin High Income R |
Conservative Allocation | FISRX | Franklin Income R |
LARGE VALUE | FLCRX | Franklin Large Cap Value R |
SMALL VALUE | FRMCX | Franklin MicroCap Value A |
ROOT | CASH | CASH |
LARGE BLEND | FRDRX | Franklin Rising Dividends R |
Small Growth | FSSRX | Franklin Small Cap Growth R |
SMALL VALUE | FVFRX | Franklin Small Cap Value R |
Mid-Cap Growth | FSMRX | Franklin Small-Mid Cap Growth R |
Conservative Allocation | FTCRX | Franklin Templeton Cnsrv Target R |
Moderate Allocation | FGTRX | Franklin Templeton Growth Target R |
Moderate Allocation | FTMRX | Franklin Templeton Moderate Target R |
Intermediate-Term Bond | FTRRX | Franklin Total Return R |
Intermediate Government | FUSRX | Franklin US Government Secs R |
LARGE VALUE | BEGRX | Mutual Beacon Z |
WORLD STOCK | MDISX | Mutual Discovery Z |
EUROPE STOCK | MEURX | Mutual European Z |
LARGE BLEND | SVSPX | SSgA S&P 500 Index |
DIVERSIFIED EMERGING MKTS | TDMRX | Templeton Developing Markets R |
Foreign Large Value | TEFRX | Templeton Foreign R |
WORLD BOND | TPINX | Templeton Global Bond A |
WORLD STOCK | TEMGX | Templeton Global Smaller Comp A |
WORLD STOCK | TEGRX | Templeton Growth R |
WORLD STOCK | TEMWX | Templeton World A |
ROOT | CASH | CASH |
Asset Class | Number of funds |
---|---|
REITs | 0 |
Balanced Fund | 4 |
Fixed Income | 5 |
Commodity | 0 |
Sector Fund | 0 |
Foreign Equity | 6 |
Emerging Market Equity | 1 |
US Equity | 12 |
Other | 3 |
Total | 31 |
As of Aug 9, 2011, this plan investment choice is rated as above 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 great (93%)
Fund Quality -- Rated as above average (67%)
Portfolio Building -- Rated as above average (65%)
Overall Rating: above average (74%)
A closer look at the plan reveals the following
- The plan uses its many funds. Templeton is famous for its global investing skills. In the plan, it provides Templeton Global Bond A and Templeton Developing Markets R. Both funds are stellar performers in foreign bonds and emerging market stocks investing.
- The plan uses Goldman Sachs Core Plus Fixed Income I, in addition to its Franklin Total Return R for U.S. core bond investments.
- The plan includes an equity index fund State Trust Bank S&P 500 Index Common Collective Trust, in addition to its famed mutual series funds (such as Mutual Discovery Z), indicating the money manager's acknowledgement to the benefit of using low cost index funds.
- Other than the two outside funds, the plan uses all of its hiqh quality funds that in general have average fund quality ranking of 67% in MyPlanIQ plan fund ranking.
The following shows how well a typical employee can do using these funds in the plan, compared with a Simple Is Better plan that uses only four index ETFs:
US Equity: SPY or VTI
Foreign Equity: EFA or VEU
Emerging Market Equity: EEM or VWO
Fixed Income: AGG or BND
Performance table (as of Aug 9, 2011)
Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
---|---|---|---|---|---|---|
Franklin Templeton Profit Sharing 401(k) Plan Tactical Asset Allocation Moderate | 2% | 17% | 10% | 105% | 9% | 84% |
Franklin Templeton Profit Sharing 401(k) Plan Strategic Asset Allocation Moderate | 3% | 31% | 6% | 53% | 6% | 45% |
Four Core Asset ETF (EM) Benchmark Tactical Asset Allocation Moderate | 5% | 47% | 6% | 51% | 8% | 59% |
Four Core Asset ETF (EM) Benchmark Strategic Asset Allocation Moderate | 7% | 50% | 3% | 11% | 4% | 16% |
It is clear that the plan's model portfolios consistently outperformed the benchmark plan's, indicating its fund selection.
To summarize, Franklin Templeton Profit Sharing 401(k) Plan participants can achieve the best investment returns by adopting asset allocation strategies that are tailored to their risk profiles.
Franklin Templeton Profit Sharing 401(k) Plan would do well by their employees to consider reviewing their existing funds and adding an additional asset class.
Symbols: BEN, SPX, VTI, VEU, VWO, BND, GSNIX, FGSRX, FEACX, FRCGX, FKARX, FHIRX, FISRX, FLCRX, FRMCX, FRDRX, FSSRX, FVFRX, FSMRX, FTCRX, FGTRX, FTMRX, FTRRX, FUSRX, BEGRX, MDISX, MEURX, SVSPX, TDMRX, TEFRX, TPINX, TEMGX, TEGRX, TEMWX
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