401K Investments: Alcoa Savings Plan Review
10/11/2011 0 comments
Retirement investing is a long term process. This report reviews Alcoa Inc Savings Plan MTIA plan, discusses the 401k investment options and presents the plan rating by MyPlanIQ. Asset allocation investment portfolios are examined. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how plan participants in Alcoa Inc Savings Plan MTIA can achieve reasonable investment results using portfolio management and risk management strategies for their 401k investments.
Plan Review and Rating
Alcoa, Inc. engages in the production and management of aluminum, fabricated aluminum, and alumina. The company is the largest aluminum provider in the world. Alcoa, Inc. was founded in 1888 and is based in New York, New York.
Alcoa Inc Savings Plan MTIA's 401K plan consists of 13 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 |
|---|---|---|
| LARGE GROWTH | RAFCX | American Funds AMCAP R3 |
| Moderate Allocation | RLBFX | American Funds American Balanced R5 |
| LARGE BLEND | RICFX | American Funds Invmt Co of Amer R5 |
| DIVERSIFIED EMERGING MKTS | MGEMX | Morgan Stanley Inst Emerging Mkts I |
| WORLD STOCK | RNPFX | American Funds New Perspective R5 |
| Foreign Large Growth | PRITX | T. Rowe Price International Stock |
| SMALL BLEND | PASSX | T. Rowe Price Small-Cap Stock Adv |
| Moderate Allocation | VGSTX | Vanguard STAR Inv |
| LARGE BLEND | VITPX | Vanguard Instl Ttl Stk Mkt Idx Instl Pls |
| Intermediate-Term Bond | VBMFX | Vanguard Total Bond Market Index Inv |
| MID-CAP BLEND | VIEIX | Vanguard Extended Market Idx Instl |
| Small Growth | MMCIX | BNY Mellon Small/Mid Cap Inv |
| Foreign Large Value | MPITX | BNY Mellon International M |
As of Oct 10, 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 average (51%)
Fund Quality -- Rated as average (45%)
Portfolio Building -- Rated as above average (81%)
Overall Rating: average (61%)
On stock/equity side, it offers various styles (large, mid and small cap) stock funds. Some of those funds are of high quality (such as American Funds AMCAP R3). An excellent moderate allocation fund American Funds American Balanced R5 is available for anyone who prefers using one stop shop fund.
On fixed income (bond) side, Alcoa's plan offers only one Vanguard total bond index fund (VBMFX) for its plan participants. This is an area that can be expanded.
Current Economic and Market Conditions
The U.S. and the rest of the world face long term structural problems that it takes time to correct. The following are some of these problems:
- The consumption driven economies in developed countries and the export driven economies in emerging countries result in a one way trade flow that can only be sustained for a limited time.
- Private households in the U.S. are highly in debt, mostly due to the Federal Reserve's loose monetary policy to prop up consumption and living standards. It is impossible to make debts go away overnight without inflicting severe social and economic hardship.
- Sovereign debt is growing out of control in many countries due to years of relaxed fiscal policies and the recent stimulus driven rescue. It should be noted that this exists not only in developed countries but also in several emerging countries, noticeably in China (adding local government debt, the Chinese government debt would rival the US) and somewhat in Brazil.
- Uneven productivity and competitiveness of work forces in developed countries and emerging countries. Both productivity and competitiveness can be simply measured by return on investment (ROI), or so called 'cost effectiveness'. We can see this uneven productivity from the difference between German workers and those in peripheral European countries as well as the difference between manufacture workers in the U.S. and those in emerging countries.
- The relatively decline of K-12 education quality in the U.S., especially in science and technology, makes it more and more difficult for the country to be competitive in manufacturing and producing high tech goods.
It takes time to correct structural problems as it requires fundamental changes in policies, improvements in productive investments (such as infrastructure upgrade), a better trained current work force and a future generation that is better equipped in science and technology. All this will take time.
In such an environment, it is key to have proper asset allocation in place for one's retirement investment portfolios.
Asset Class Trends
The following table shows how major asset classes such as US equity (stocks), foreign equity, emerging market equity, Real Estate Investment Trusts (REITs), commodities and fixed income (bonds) are ranked based on their price momentum.
| Assets Class | Symbols | 10/10 Trend Score | 10/03 Trend Score | Direction |
|---|---|---|---|---|
| Gold | GLD | 7.88% | 8.29% | v |
| Intermediate Treasuries | IEF | 3.76% | 7.81% | v |
| Municipal Bonds | MUB | 2.29% | 3.67% | v |
| Total US Bonds | BND | 2.05% | 3.57% | v |
| Mortgage Back Bonds | MBB | 1.45% | 2.43% | v |
| US Credit Bonds | CFT | 1.4% | 2.41% | v |
| International Treasury Bonds | BWX | 0.87% | -1.35% | ^ |
| Treasury Bills | SHV | 0.05% | 0.01% | ^ |
| Emerging Mkt Bonds | PCY | -0.27% | -0.92% | ^ |
| US Stocks | VTI | -0.74% | -10.36% | ^ |
| US High Yield Bonds | JNK | -0.86% | -5.7% | ^ |
| US Equity REITs | VNQ | -3.32% | -11.9% | ^ |
| Commodities | DBC | -3.68% | -8.09% | ^ |
| International Developed Stks | EFA | -4.28% | -14.26% | ^ |
| International REITs | RWX | -5.45% | -13.89% | ^ |
| Emerging Market Stks | VWO | -10.26% | -20.42% | ^ |
| Frontier Market Stks | FRN | -10.66% | -19.69% | ^ |
For more information on the trends of major asset classes, please see Asset Class Trend Watch.
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 4 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
Emerging Market Equity: EEM or VWO
Fixed Income: AGG or BND
Performance chart (as of Oct 10, 2011)
Performance table (as of Oct 10, 2011)
| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Alcoa Inc Savings Plan MTIA Tactical Asset Allocation Moderate | -1% | -7% | 9% | 89% | 10% | 84% |
| Alcoa Inc Savings Plan MTIA Strategic Asset Allocation Moderate | -1% | -18% | 11% | 55% | 4% | 21% |
| Four Core Asset ETF (EM) Benchmark Tactical Asset Allocation Moderate | 1% | 12% | 6% | 54% | 8% | 56% |
| Four Core Asset ETF (EM) Benchmark Strategic Asset Allocation Moderate | -4% | -40% | 10% | 37% | 3% | 6% |
Currently Fixed Income, Cash and International Bonds are doing well. Only one fixed income bond fund VBMFX is available to Alcoa Inc Savings Plan MTIA participants.
To summarize, participants adopting Alcoa Inc Savings Plan MTIA 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 401k investing.
Symbols: AA, SPX, COMP, VTI, VEU, VWO, BND, RAFCX, RLBFX, RICFX, MGEMX, RNPFX, PRITX, PASSX, VGSTX, VITPX, VBMFX, VIEIX, MMCIX, MPITX, 401K Investments, Portfolio Management, Retirement Investing
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