08/13/2011

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.

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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03/25/2011

It’s time to get personal with inflation. First you have to stop pretending that the government’s Consumer Price Index (CPI) is a precise guide to the cost of living.

For those on Social Security and workers whose wages are indexed to the CPI (lucky you), the index is a Rosetta Stone, although not a very good one. It may not be an accurate reflection on your cost of living.

To see how inflation impacts your life, you need to take two separate views: your daily living expenses and your long-term portfolio.

In the most recent CPI report, for example, thegovernment told us that the overall rate of inflation rose 1.6 percent annually (through January). That figure alone is kind of meaningless and a convenient fiction that masks the true impact of the cost of living on your life. Let’s break that down.

The bulk of the increase — some two-thirds — was due to increases in energy and food prices. No surprise there. In many places, gas is more than $4 a gallon at the pump. Since most food is transported by truck and modern agriculture is perilously dependent upon fossil fuels, those prices went up, too.

With continuing turmoil in and around Middle East oil fields, the price of petroleum has breached the $100-a-barrel mark. Since it’s unlikely that Egypt, Libya, Bahrain and other hot spots will resolve their long-standing political conflicts any time soon, don’t look for any major breaks in energy prices in the near future. Breaking down the energy price impact even more, if you’re stuck in a car commute or do a lot of driving, you’ll feel this part of inflation most acutely. Gasoline prices alone soared more than 13 percent in the government’s last CPI report. They’re up even more to date.

The food sub-index, as I mentioned earlier, also has been climbing, although surprisingly you will see that eating at home is costing more than going out, but not by much. The “food-at-home” CPI component was up more than two percent compared to a 1.5 percent rise in the “food away from home” number.

How does all of this translate to your life? If you are retired and travel a lot, you’re going to pay more. If you’re relatively sedentary, you’ll pay more for food, delivery charges and other forms of transportation. Across the board, you’ll see higher prices for airline tickets, pharmaceuticals and anything made of plastic or shipped long distances. We’re still mired in the petroleum age, unfortunately.

Your portfolio is a different animal. While you can directly measure the daily cost of living, it’s much harder to see in your long-term savings. Yet inflation does significant damage over time. A rising cost of living forces interest rates up, which reduces bond prices (higher yields are some consolation). The value of a dollar today is worth less tomorrow in an inflationary environment.

Fortunately, there’s a lot you can do to bolster your portfolio from the ravages of inflation:

·         Take an account of your bond position. Money you have invested in highly-rated single bonds or Treasury securities that you hold to maturity should be secure. Mutual funds are vulnerable to principal loss when rates rise.

·         Make sure you protect your income portfolio through Treasury Inflation-Protected Securities or TIPS. One strong choice is the Vanguard Inflation-Protected Securities Fund. You can also buy TIPS directly from the U.S. Treasury.

·         Check out global bond funds. They may offer some better returns, although they still have credit, interest-rate and currency risk. The Templeton Global Bond Fund is worth considering.

·         Rising rate funds. Some mutual funds are designed to track interest-rate increases through floating-rate bonds, which are indexed to bank loans. The Fidelity Floating Rate High Income Fund is one such vehicle.

The best thing you can do right now is to vet your portfolio. How much of a hit would you take if interest rates rose one percent? A gauge used by money managers called “duration” would give you the percentage estimate of a potential loss. This is a key number to check in bond mutual funds and single bonds: Generally the longer the bond’s maturity, the higher the duration and risk of losing principal in a rising-rate environment.

Once you’re finished with your portfolio check, you can personalize your inflation fight even more. Look at what you’re spending every month for basic expenses such as food, transportation, housing, etc. What items are rising the most? Where can you save? While the CPI may not be a beacon on inflation, if you don’t take a close look at your own cost of living, it won’t shed much light at all.

Symbols:VIPSX,TPINX,FFRHX,TIP,BWX,WIP,

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