04/19/2011

The combination of a robust U.S. equity market and the proliferation of company-sponsored retirement plans helped push total assets in 401(k) pans over the $3 trillion threshold at close of last year, up 13% from 2009. The incidents in Japan, the Middle East and even as far back as New Orleans teach us the danger of living on borrowed time, the reactors, the governments the levees keeping things going -- just one more year. The temptation to delay until next time is very seductive until disaster strikes and the cost to repair, dwarfs the cost to prevent. Many working people put off their retirement investing -- just one more year until it becomes a "hair on fire" problem -- which it now is for baby boomers for whom retirement is a near and present danger.

The starting point for any retirement investing is the company provided retirement plan. Not all plans are created equal. Not all plans have the same number of choices, asset classes, quality of funds and, most importantly, risk adjusted returns.

Fedex has more funds but have one less asset class -- UPS has REITs and Fedex does not. Neither company provides Emerging Markets or Commodity funds.

Both companies have a wide choice of Target Date funds which may appeal to some but are expensive and have mixed reviews as to their value for money.

It is interesting that UPS has emerging market bonds but no emerging ma
There are easy ways to improve these plans with emerging market and commodity exposure.

As of Apr 18, 2011, UPS Savings Plan investment choice is rated as average and Federal Express (FedEx) 401K Plan for Pilots investment choice is rated as below 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:

Performance chart (as of Apr 18, 2011)

Performance table (as of Apr 18, 2011)

Currently Commodities, Real Estate and US Equity are doing well. US Equity and Real Estate available to UPS Savings Plan participants Only US Equities are available to FedEx participants.

When we add the six asset class SIB benchmark to the table, it is possible to see how the two compare against a reference.

Takeaways

• The UPS plan with its extra asset class has a three point lead over the FedEx plan when comparing tactical asset allocation
• The Six asset class benchmark has a three point lead over the UPS plan when comparing tactical asset allocation
• The FedEx plan without the recent burden of the Real Estate crash beats UPS when comparing strategic asset allocation
• The Six asset class benchmark beats the FedEx plan over five years where emerging markets and commodities offset the drag of real estatewhen comparing strategic asset allocation

With either plan, augmenting a retirement portfolio with emerging market equities and commodities will provide better diversification and likely higher risk adjusted returns. As inflation seems like a near certainty, commodity exposure becomes increasingly important.

Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Symbols: UPS, FDX, BAEDX, EFA, BPRAX, SSINX, SBMRX, SVSPX, MDY, VGSIX, VTINX, IWM, VGTSX, VTRIX, VIPSX, VBTIX, VIFSX, VWNDX, VEMSX, VMISX, VWELX, VSMGX, VTINX, VSISX, AGG, BND, VTI, VNQ, IYR, DBC, VWO, EEM, EFA

Exchange Tickers: (UPS), (FDX), (BAEDX), (EFA), (BPRAX ), (SSINX), (SBMRX), (SVSPX), (MDY), (VGSIX), (VTINX), (IWM), (VGTSX), (VTRIX), (VIPSX), (VBTIX), (VIFSX), (VWNDX), (VEMSX), (VMISX), (VWELX), (VSMGX), (VTINX), (VSISX), (AGG), (BND), (VTI), (VNQ), (IYR), (DBC), (VWO), (EEM), (EFA)

comments(0) 

04/13/2011

comments(0) 

01/15/2011

We have examined the retirement plans of two of the major players in shipping and logistics. UPS  has a four asset class plan and Fedex has a three asset class plan.

We now compare them side by side and see how the different attributes of the plans lead to different results.

The funds line up

Both companies offer a large number of balanced funds that include target date funds. UPS has a better selection of fixed income but FEDEX has more choices in international and US Equities.

In general, both would do better to have more choices in each of their funds. One choice in REIT and foreign equity for UPS is low.

 
We note that UPS gets much higher marks for having the extra asset class. UPS has an emerging market bond fund which provides additional exposure in bonds which further boosts its rating. Fedex does not score highly.

Fedex does beat out UPs in fund quality but with a better choice of funds, UPS gives a better portfolio mix.

The result is that the UPS plan scores more highly than the FEDEX plan.

We now line up returns performance for the last five years and see how this plays out.

Performance chart (as of Jan 11, 2011)

Performance table (as of Jan 11, 2011)

Currently US Equity, Commodities and Real Estate are doing well. US Equity and Real Estate available to UPS Savings Plan participants whereas only US Equity is available to the Fedex participants,

We note the behavior of the FEDEX plan is consistent with the majority of plans we have analyzed: The one year returns for SAA beat out the TAA performance. The strong US and other equity markets created a bull market and SAA will usually outperform in those circumstances. Over the longer term where there are a mix of favorable and unfavorable conditions, TAA limits losses which compensates for the reduced upside.

The UPS plan, with its larger number of asset classes should, in theory, give better returns -- which it does in TAA but not in SAA and this is worth some explanation.

For the one year returns

• The tactical asset allocation was able to provide better returns by virtue of having a range of bond and balanced funds which provided some upside to the rather dismal bond behavior
• TAA was able to take advantage of moving in and out of US equities when they fell back in the middle of the year
• TAA didn't have positions in international equity until late in the year
• The SAA had to take the US and international equities hit and had nothing to offset the gain
• Real estate was a constant factor for both 

• 2007 to date has given us unprecedented financial markets that have challenged conventional wisdom and stressed assumptions for investment plans
• There are special cases where strategies perform in a counter-intuitive manner
• It's critical not to be caught up in the  exuberance of the last year and especially the last quarter and forget the gut wrenching days that so quickly fade
• It is critical to understand your asset class choices and the risk and reward they offer.

labels; investment
Symbols:UPS,FDX,SPY,VTI,EFA,VEU,EEM,VWO,AGG,BND,HYG,JNK,PHB,AOM,CIU,BIV,MTK,PTF,RYT,ROM,GWL,PFA,IVE,IWW,JKF,VTV,PWV,RPV,SCHV,EFV,PID,DWM,IVV,IYY,IWV,VV,DLN,RSP,SCHX,IVW,IWZ,JKE,VUG,QQQQ,RPG,SCHG,IJJ,IWS,JKI,VOE,PWP,RFV,UVU,IJH,IWR,JKG,VO,MDY,EMM,PJG,DON,EZM,MVV,

comments(0)