403B Investments: University of California Retirement Savings Program Review
09/16/2011 0 comments
University of California systems is the largest public university system in the nation. It provides its faculties and staff 457(b) deferred compensation, defined contribution and 403(b) tax deferred plans with UC Core Funds and a set of supplemental low cost funds from Vanguard, Dimensional Funds and Dreyfus. Please refer to its annual report of June 2010 for more information.
This report reviews University of California Retirement Savings Program plan. We discuss its investment options and presents the plan rating by MyPlanIQ. Asset allocation investment portfolios are examined. We then show how plan participants in University of California Retirement Savings Program can achieve reasonable investment results using portfolio management and risk management strategies for their 401k investments.
We form University of California Retirement Savings Program using funds reported in the annual report. UC Core funds are represented by corresponding Vanguard index funds as proxies.
The plan consists of 15 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, REITs, Emerging Market Equity, Fixed Income.
| Asset Class | Ticker | Name |
|---|---|---|
| SMALL BLEND | VSMAX | Vanguard Small Cap Index Adm |
| DIVERSIFIED EMERGING MKTS | DFEMX | DFA Emerging Markets I |
| REAL ESTATE | VGSLX | Vanguard REIT Index Adm |
| LARGE GROWTH | VFTSX | Vanguard FTSE Social Index Inv |
| ROOT | CASH | CASH |
| Short-Term Bond | VBISX | Vanguard Short-Term Bond Index Inv |
| Intermediate-Term Bond | VBTLX | Vanguard Total Bond Market Index Adm |
| SHORT GOVERNMENT | STABLEVALUE | STABLEVALUE |
| LARGE BLEND | IWV | iShares Russell 3000 Index |
| LARGE BLEND | VFINX | Vanguard 500 Index Investor |
| Foreign Large Blend | EFA | iShares MSCI EAFE Index |
| Inflation-Protected Bond | VIPSX | Vanguard Inflation-Protected Secs Inv |
| Moderate Allocation | CFUNX | C/Funds:C/Fund |
As of Sep 15, 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 above average (84%)
Fund Quality -- Rated as below average (24%)
Portfolio Building -- Rated as above average (78%)
Overall Rating: average (64%)
The plan has a good diversification score as it covers the five major asset classes. In the US stock asset class, it has small and large cap style funds. All of these are low cost index funds.
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 5 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
REITs: IYR or VNQ or ICF
Emerging Market Equity: EEM or VWO
Fixed Income: AGG or BND
Performance chart (as of Sep 15, 2011)
Performance table (as of Sep 15, 2011)
| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| University of California Retirement Savings Program Tactical Asset Allocation Moderate | 2% | 40% | 12% | 95% | 11% | 87% |
| University of California Retirement Savings Program Strategic Asset Allocation Moderate | 3% | 22% | 6% | 22% | 5% | 19% |
| Five Core Asset ETF Benchmark Tactical Asset Allocation Moderate | 6% | 61% | 10% | 76% | 9% | 64% |
| Five Core Asset ETF Benchmark Strategic Asset Allocation Moderate | 4% | 27% | 6% | 22% | 4% | 15% |
In the last 5 year time span, the UC Plan beats the SIB 5 core portfolios in both strategic and tactical asset allocation categories. This indicates that extra minor asset classes (such as small/large cap) do provide additional opportunities for better portfolio management and risk management.
To summarize, participants in University of California Retirement Savings Program plan can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles. Diversification and proper risk management are the two major key factors in retirement investments (in this case, 403b investments).
Symbols: SPX, QQQQ, IWV, EFA, VTI, VEU, VWO, VNQ, BND, VSMAX, DFEMX, VGSLX, VFTSX, VBISX, VBTLX, VFINX, VIPSX, CFUNX, FSLBX, Retirement Investments, 403b Investments, Portfolio Management, Risk Management
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