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)

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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