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2. investing
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D4 Business |
2R
| SUNDAY, JANUARY 11, 2015
MutualFunds
NOTABLE 2014 FUNDS
THAT BIT THE DUST
Your Funds
Chuck Jaffe
Syndicated columnist
If the
mutual­fund
world was a
meritocracy,
thousands of
funds would
die tomor­
row.
As it is, only the unloved,
unfortunate, unlucky and
unnoticed typically get
killed off in any year, and no
one mourns their loss.
This past year was no
exception, as funds that
took the big dirt nap in 2014
mostly were a mix of the
uninspired, goofy, medio­
cre, the marketing failures
and the big mistakes.
Still, a few of these funds
created legacies or lessons
that investors should re­
member. With that in mind,
let’s whistle past the mutu­
al­fund graveyard for a few
tales from the crypt.
Among the funds that
shuffled off their mortal coil
this past year:
Oceanstone
One of the most mysteri­
ous funds ever with a supe­
rior track record, Ocean­
stone failed to survive the
sudden death of its manag­
er, James Wang, this past
summer. But in death as in
life, the fund left more ques­
tions than it answered.
If you invested $10,000 in
Oceanstone at its 2006
inception, you got nearly
$80,000 back when the
fund liquidated in August.
The mystery is how Wang
did it. He never gave inter­
views, reportedly didn’t
even take phone calls and
the fund’s directors never
said anything about his
management style or tech­
nique.
Wang’s portfolio disclo­
sures were as bare­bones as
the fund’s website; what’s
clear from disclosures and
research analysis is that he
bought U.S. stocks large
and small, and traded them
heavily.
When Oceanstone won a
Lipper Fund Award in 2012,
Wang was the only manag­
er who failed to show up to
receive the prize; his ab­
sence wasn’t surprising,
however, as representatives
from Lipper reported that
they couldn’t reach Wang to
tell him that he had won.
Wang wasn’t just the fund
manager, he was treasurer,
secretary and chief compli­
ance officer; an SEC filing
noted that the headquarters
address for Oceanstone was
a residence, presumably
Wang’s (though the docu­
ment didn’t say).
The little information
available about the fund
leaves a real question as to
whether Wang was good —
as he looked in 2009 when
Oceanstone gained 264
percent — or just lucky.
Morningstar showed the
fund as having a standard
deviation — a measure of
how wide a fund’s potential
swings could be — of nearly
40; that’s 1.5 times higher
than the standard deviation
of the average emerging­
markets fund, considered to
be among the most­volatile
asset classes, and it suggests
that despite Wang’s success
he just as easily could have
been down massive
amounts if he kept on going.
His death means we will
never know if he was doing
management magic or was
just lucky enough to keep
rolling 7s in the stock mar­
ket’s game of craps.
iShares Target­Date
ETFs
When iShares knocked
off 18 of its issues in Octo­
ber, the surprise of the an­
nouncement was that the
firm killed off its entire line
of target­date exchange­
traded funds — nine in all,
running from the 2010
vintage in five­year inter­
vals up to iShares Target
Date 2050.
The company is not the
only one to get out of the
target­date game, as both
Legg Mason and Hartford
killed lineups of traditional
funds with target­date
agendas, but when its funds
failed to attract big assets,
management took it as a
sign that retirement savers
aren’t yet ready to commit
to the ETF lifestyle.
If the biggest ETF provider
can’t make it work, no one
else will; if and when retire­
ment savers join the ETF
revolution, expect iShares to
manage a resurrection.
Virginia Equity
This fund planned to be
the latest issue focused on a
tight geographic area when
the fund was ready to open
its doors in January.
The idea was to invest at
least 80 percent of the
fund’s assets in securities for
companies headquartered
in Virginia or with a signifi­
cant impact on the economy
of the Commonwealth.
There have been other
regional funds — exchange­
traded funds focused on
Oklahoma and Texas re­
spectively were killed off in
2010 after less than a year
in business — but the idea
that any fund can gain a
true investing edge by
knowing their home­base
area better than anyone else
is anachronistic.
While the companies may
be local, they function in the
global marketplace and are
typically affected more by
events far afield than by
what’s happening at home.
Today, only the Lo­
calShares Nashville Area
ETF (NASH) — started in
2013 — is trying the strate­
gy, and it has less than $10
million in assets.
That’s better than the
Virginia fund could muster,
however. Last summer, the
fund’s investment adviser —
also the fund’s sole share­
holder — said that based on
an inability to raise money,
the fund would be liquidat­
ed before it actually com­
menced operations.
BMO Global Natural
Resources Fund
This fund liquidated last
week, less than seven
months from when it
opened, down more than 20
percent in its short, misera­
ble existence.
When a fund opens and
sinks immediately to the
very bottom of its peer
group, shareholders should
wonder if it had any re­
deeming qualities to begin
with; when management
closes it in months, they
have stopped wondering.
GL Macro Performance
The sister fund to GL
Beyond Income — an un­
known fund until portfolio
manager Daniel Thibeault’s
December arrest on fraud
charges — was itself anony­
mous throughout its 19­
month existence, mostly flat
until a spectacular flameout
sent it to the very bottom of
its Morningstar peer group.
In its last year of exis­
tence, the fund was down
about 37.5 percent, but 36
points of that loss came in
the last two months.
Thibeault actually sent
shareholders a note saying
that the fund’s “rigid struc­
ture results in adverse per­
formance for certain alter­
native investment strate­
gies,” promising that, “We
will be taking two actions to
rectify this matter going
forward and shelter you
from potential losses which
resulted from it.”
Instead, Thibeault shel­
tered investors from future
losses by shutting down the
fund, which hardly “recti­
fied” the matter with inves­
tors.
Chuck Jaffe is senior columnist for
MarketWatch. He can be reached
at [email protected] or at
P.O. Box 70,
Cohasset, MA 02025­0070.
Copyright 2015, MarketWatch
Fund Tracker
Weekly spotlight on mutual fund performance
Winners and losers: A mutual­fund scorecard
Fund Wkly % YTD %
obj return return
Biggest funds
American Funds A AmcpA p
American Funds A AMutlA p
American Funds A BalA p
American Funds A BondA p
American Funds A CapIBA p
American Funds A CapWGA p
American Funds A FdInvA p
American Funds A GwthA p
American Funds A IncoA p
American Funds A ICAA p
American Funds A N PerA p
American Funds A SmCpA p
American Funds A WshA p
Artisan Funds Intl
BlackRock Instl StrIncoOpp
BlackRock Instl EquityDv
BlackRock Instl GlbAlloc r
Dimensional Fds EmMCrEq
Dimensional Fds EmMktV
Dimensional Fds USLgVa
Dodge&Cox Balanced
Dodge&Cox Income
Dodge&Cox IntlStk
Dodge&Cox Stock
DoubleLine Funds TRBd I
FPA Funds FPACres
Fidelity Freedom FF2020K
Fidelity Freedom FF2030K
Fidelity Invest Balanc
Fidelity Invest Contra
Fidelity Invest GroCo
Fidelity Invest LowP r
Fidelity Invest Puritn
Fidelity Invest TotalBd
Fidelity Spart Adv 500IdxAdv
Fidelity Spart Adv TotMktAd r
Frank/Temp Frnk A IncomA p
Frank/TmpFrnkAdv GlbBdAdv
Harbor Funds CapApInst
Harbor Funds Intl r
Loomis Sayles LSBondI
MFS Funds I ValueI
Metro West Fds TotRtBdI
Oakmark Funds I EqtyInc r
Oakmark Funds I Intl
Oakmark Funds I Oakmark
Oppenheimer Y DevMktY
PIMCO Instl PIMS AllAsset
PIMCO Instl PIMS TotRt
PIMCO Funds Instl Income
Price Funds BlChip
Price Funds CapApp
Price Funds EqInc
Price Funds EqIndex
Price Funds Growth
Price Funds MidCap
Price Funds N Horiz
Price Funds N Inc
Price Funds Ret2020
Price Funds Ret2030
Price Funds Value
Schwab Funds S&P Sel
Vanguard Admiral 500Adml
Vanguard Admiral GNMA Ad
Vanguard Admiral HlthCr
Vanguard Admiral ITAdml
Vanguard Admiral ITGrAdm
Vanguard Admiral LtdTrAd
Vanguard Admiral MCpAdml
Vanguard Admiral PrmCap r
Vanguard Admiral STIGrAd
Vanguard Admiral SmCAdm
Vanguard Admiral TtlBAdml
Vanguard Admiral WellslAdm
Vanguard Admiral WelltnAdm
Vanguard Admiral WdsrIIAd
Vanguard Fds TotIntBInv
Vanguard Fds DivdGro
Vanguard Fds STAR
Vanguard Fds TgtRe2015
Vanguard Fds TgRe2020
Vanguard Fds TgtRe2025
Vanguard Fds TgRe2030
Vanguard Fds TgtRe2035
Vanguard Fds TgtRe2040
Vanguard Fds TgtRe2045
Vanguard Idx Fds TotlIntl
Bloomberg News
Bill Gross, the former
manager of the world’s
largest bond fund, said with
global expansion still sput­
tering after years of interest
rates near zero, investors
will gradually seek alterna­
tives to risky assets in 2015.
“When the year is done,
there will be minus signs in
front of returns for many
asset classes,” Gross wrote
in an investment outlook for
Janus Capital Group, where
he runs the Janus Global
Unconstrained Bond Fund.
“The good times are over.”
­0.8
­0.6
­0.3
+0.7
­0.2
­0.8
­0.9
­1.0
­0.1
­0.8
­0.9
­0.2
­0.6
­0.4
0.0
­1.2
­0.6
+0.8
+0.9
­1.5
­0.7
+0.3
­1.2
­1.2
NA
­0.4
­0.4
­0.6
­0.4
­0.8
+0.1
­1.0
­0.2
+0.4
­0.6
­0.7
­0.4
+0.5
­0.6
­2.1
+0.3
­0.7
+0.6
­0.8
­2.0
­1.6
­0.5
NA
+0.5
NA
­0.5
­0.3
­1.5
­0.6
­0.7
­0.4
­0.8
+0.6
­0.4
­0.6
­0.8
­0.6
­0.6
­0.1
+2.1
+0.5
+0.8
+0.1
­0.6
­0.7
+0.2
­0.9
+0.7
+0.3
­0.2
­1.0
+0.3
0.0
­0.3
­0.1
­0.2
­0.4
­0.4
­0.6
­0.6
­0.6
­1.2
­0.9
­0.6
­0.3
+0.9
­0.3
­1.0
­1.1
­1.1
­0.1
­0.9
­1.0
­0.4
­0.8
­0.8
+0.1
­1.2
­0.6
+0.5
+0.5
­1.6
­0.7
+0.4
­1.6
­1.3
NA
­0.7
­0.5
­0.8
­0.4
­1.0
0.0
­1.6
­0.2
+0.6
­0.6
­0.7
­0.4
+0.1
­0.7
­2.7
+0.1
­1.0
+0.8
­1.1
­2.4
­1.9
­1.0
NA
+1.0
NA
­0.5
­0.2
­1.5
­0.6
­0.8
­0.4
­1.1
+0.9
­0.3
­0.6
­0.7
­0.7
­0.6
+0.2
+2.3
+0.6
+1.1
+0.2
­0.5
­0.6
+0.3
­1.1
+1.0
+0.5
­0.1
­1.0
+0.6
­0.2
­0.3
­0.1
­0.2
­0.4
­0.4
­0.6
­0.7
­0.8
­1.5
+14.4
+13.2
+11.6
+4.6
+8.5
+8.2
+12.5
+12.6
+10.8
+12.6
+9.7
+10.5
+14.3
+8.3
+5.5
+12.1
+6.0
+1.9
­0.9
+15.5
+12.0
+5.1
+6.8
+14.5
NS
+9.9
+7.7
+8.7
+11.0
+14.2
+17.2
+14.6
+11.1
+5.3
+14.6
+14.8
+8.8
+5.5
+14.0
+4.3
+8.1
+13.6
+6.8
+9.3
+8.2
+15.2
+4.9
NA
+5.2
NA
+16.1
+12.7
+12.2
+14.4
+15.2
+16.6
+20.4
+4.5
+9.6
+10.7
+15.1
+14.6
+14.6
+4.3
+20.4
+4.7
+6.4
+2.1
+16.0
+15.6
+2.9
+15.8
+4.5
+9.5
+10.9
+13.3
NS
+14.3
+9.6
+8.5
+9.1
+9.6
+10.1
+10.5
+10.8
+10.8
+3.3
Best performers
­0.7 +14.7
­0.6 +14.7
­0.7 +14.9
Fund Wkly % YTD %
obj return return
SQ
AU
AU
AU
AU
AU
AU
AU
AU
AU
AU
AU
AU
AU
AU
AU
AU
AU
SQ
AU
SQ
LU
RE
GT
RE
RE
RE
RE
RE
RE
­24.3
­14.4
­14.4
­11.5
­13.9
­15.4
­15.4
­14.6
­11.9
­12.2
­14.2
­9.8
­14.7
­11.2
­9.4
NS
­23.5
­19.0
­20.1
­12.3
+21.3
+17.2
+18.6
+12.4
+18.8
+17.8
+16.8
NS
+17.7
+18.1
Fund Wkly % YTD %
obj return return
5­yr %
return
Direxion Fds NatRBull2X
Rydex Investor EnrgySer
ICON Fds Energy S
BlackRock A Eng&ResA
ProFunds Inv Cl UltraJapan
Baron Funds Energy
Fidelity Selects EngSv
ProFunds Inv Cl Oil&Gas
Fidelity Selects NtGas
Waddell & Reed Adv EnergyA t
Ivy Funds EnergyA t
Oppenheimer A StlpthAlpha
Rydex Investor Energy
Guinness Atkinson GlbEnrgy r
Fidelity Selects Banking
Invesco Funds A Energy p
BlackRock A ACEngRsA
Prudential Fds A FinServA
Ivy Funds GlNatRsA p
ProFunds Inv Cl RRatesOpp
Oppenheimer Y Alpha Y
Fidelity Selects Enrgy
Fairholme
Invest Managers TowleDpV
John Hancock A RgBkA
Fidelity Adv Foc A EnergyA p
Integrity Viking WillBasA p
Voya Funds Cl A GlbNatRs
Vanguard Admiral Energy
Rydex H Class S&PSCpV
SE
NR
NR
NR
SQ
NR
NR
SQ
NR
NR
NR
NR
NR
NR
FS
NR
NR
FS
NR
SQ
NR
NR
XV
SV
FS
NR
NR
NR
NR
SV
+9.2
+8.9
+8.7
+8.5
+8.0
+7.9
+7.8
+7.8
+7.8
+7.4
+7.3
+7.0
+6.6
+6.6
+6.3
+6.3
+5.9
+5.5
+5.1
+4.3
+4.2
+4.2
+4.0
+4.0
+3.9
+3.8
+3.8
+3.7
+3.7
+3.7
5­yr %
return
+12.5
+12.0
+11.8
+11.0
+10.5
+9.6
+10.1
+10.6
+10.1
+10.2
+10.5
+8.7
+9.4
+10.6
+9.2
+7.7
+9.1
+5.9
­0.7
+5.7
+6.4
+5.9
+5.5
+5.7
+5.4
+5.2
+5.3
+5.1
+5.2
+5.1
ProFunds Inv Cl PrecMetal
Fidelity Selects Gold r
USAA Group PrecMM
OCM Funds GoldInv t
Amer Century Inv GlGold
Deutsche Trust Gold&Prc
US Global Investors Gld&Mtls
Rydex Investor PrecMet
GAMCO Funds GoldAAA
Wells Fargo Adv A PrecMtlA
Oppenheimer A Gold p
First Eagle SGenGld p
Frank/TempFrnkA GoldPrM A
Invesco Funds A GoldPrec p
Tocqueville Fds Gold t
Invest Managers EuroPGld A
Midas Funds Midas Fd t
US GlobalInvestorsWldPrcMn
Direxion Fds LatAmBull
Vanguard Fds PrecMtls r
ProFunds Inv Cl RealEst
Vanguard Instl Fds ExDurTreas
Principal Inv RealEstScI
ProFunds Serv USGovPlus
Amer Century Inv RealEstI
Virtus Funds A ReE A p
Ivy Funds RealEstA p
Fidelity Invest REEq F
SSgA Funds ClarionRE p
Fidelity Advisor I AdvReEstI
Worst performers
­0.6
­0.6
­0.6
­7.3
­6.9
­6.4
­6.4
­6.1
­6.1
­5.9
­5.7
­5.5
­5.5
­5.5
­5.3
­5.1
­5.1
­4.8
­4.8
­4.2
­4.2
­4.1
­4.1
­4.1
­4.0
­4.0
­4.0
­4.0
­4.0
­3.9
­3.9
­3.9
­3.8
­6.3
­6.8
­5.8
­5.8
­4.5
­5.4
­5.8
­5.0
­5.0
­4.9
­4.9
­3.6
­4.7
­5.2
­5.3
­4.5
­4.2
­4.2
­3.7
­5.6
­2.7
­3.5
­3.6
­4.4
­5.0
­3.5
­3.3
­3.5
­3.5
­4.4
­5.2
­3.1
+0.7
­7.1
+9.2
NS
­1.1
+5.6
­1.4
+2.3
+2.3
NS
+0.8
­1.3
+11.1
­1.1
­1.9
+7.4
­5.4
­17.9
NS
+2.6
+6.7
NS
+11.6
+2.4
+11.0
­1.1
+1.2
+11.1
Footnotes: e: Ex capital­gains distribution. f: Previous day{rsquo}s
quote. n or nl: No upfront sales charge. p: Fund assets are used to
pay for distribution costs. r: redemption fee or contingent deferred
sales load may apply. s: Stock dividend or split. t: Both p and r. x: Ex
cash dividend. NE: Data in question. NS: Fund did not exist at the
start date. NA: No information available.
Key to abbreviations and footnotes:
Fund objectives: AB: Long­term top­grade corporate and govern­
ment bonds. AU: Gold oriented. BL: Balanced. EI: Equity income.
EM: Emerging markets. EU: European region. GL: Global (includes
U.S.). GM: General municipal bond. GT: General taxable bond. HB:
Health and biotech. HC: High­yield taxable bond. HM: High­yield
municipal bond. IB: Intermediate­term investment­grade corporate
bond. IG: Intermediate­term Treasury/government debt. IL:
International (outside U.S.). IM: Intermediate­term municipal bond.
LC: Large­cap core. LG: Large­cap growth. LT: Latin American. LU:
Long­term Treasury/government debt. LV: Large­cap value. MC:
Mid­cap core. MG: Mid­cap growth. MP: Mixed portfolio (stocks and
bonds). MT: Mortgage. MV: Mid­cap value. NM: Insured municipal
bond. NR: Natural resources. PR: Pacific region. SB: Short­term
investment­grade corporate bond. SC: Small­cap core. SE: Sector
(specific industries). SG: Small­cap growth. SM: Short­term munici­
pal debt. SP: S&P 500. SQ: Specialty diversified equity. SS: Single­
state municipal debt. SU: Short­term Treasury/government debt.
SV: Small­cap value. TK: Science and technology. UN: Unclassified.
UT: Utility. WB: World bond. XC: Multi­cap core. XG: Multi­cap
growth. XV: Multi­cap value
5­year % return: Annualized performance over the past five years.
Top 5 mutual funds by objective, year­to­date % return
Emerging markets
Voya Funds Cl A
Price Funds
Frank/Temp Frnk A
WM Blair Fds Inst
WM Blair Fds Inst
RussiaA p
EmEurop
T BRIC A t
EmMkGrI r
EmMLdrGr
Equity income
City Nat Rochdale
Federated Instl
Invesco Funds A
Paydenfunds
Columbia Class A
Div&Inc N
StrValDvIS
Utilities p
ValLdrs
DivOpptyA
Health | biotech
Fidelity Selects
Fidelity Advisor A
Rydex Investor
Prudential Fds A
Hartford Fds A
Biotch
Biotech A
Biotech
HlthSciA
Hlthcare p
Global
Mkt Mster100
Invest Managers
Lazard Instl
Vanguard Fds
APIEfFrInc
KnoLdr Ins
GblInfra I
GblMnVInv
Wasatch
Columbia Class Z
EuroPac Funds
Westcore
John Hancock Fds
IntlOppt r
AcnIntSIZ
IntlValue
IntlFrntr r
IntlGrw I
Large­cap core
Fidelity Invest
Invesco Fds Invest
BMO Funds
Amer Century Inv
Eaton Vance A
YTD %
return
StrDvIn
Exch
LowVolEq I
LegFocLC
DivBldrA x
YTD %
return
Mid­cap core
+3.9
+2.6
+2.0
+1.5
+1.3
Davenport Funds
Touchstone Family
JPMorgan Sel Cls
Wright Funds
Vanguard Admiral
YTD %
return
Small­cap core
+0.4
+0.2
+0.1
+0.1
0.0
Invesco Funds A
Touchstone Family
GoldmanSachsInst
Principal Inv
Touchstone Family
YTD %
return
Fidelity Invest
Dreyfus
Guinness Atkinson
Oppenheimer A
Center Coast
YTD %
return
Pacific region
+1.5
+0.9
+0.7
+0.5
+0.2
EuroPac Funds
Columbia Class A
Oberweis Funds
Guinness Atkinson
Dreyfus
USAA Group
Ivy Funds
Waddell&Reed Adv
Oak Assoc Fds
Allianz Fds Instl
YTD %
return
Gold oriented
Fidelity Selects
USAA Group
OCM Funds
Rydex Investor
Invesco Funds A
­0.1
­0.2
­0.3
­0.5
­0.5
YTD %
return
SmallC p
SmCapGr Y
SmCapEqty
SmCBldJ t
SCCoreInst
GlbCmdty r
NatResA
AltEnergy r
Income A
MLPFoc I
0.0
­0.3
­0.4
­0.5
­0.6
YTD %
return
­0.2
­0.7
­1.2
­1.5
­2.1
YTD %
return
AsiaSmCoA
GrChinaA
ChinaOpp
ChinaHK
GrChinaA r
Science | technology
+1.1
+0.7
+0.7
+0.6
+0.3
+0.8
+0.6
+0.5
+0.2
+0.1
EqtyOpps
MidCap Y
IntpdMCp
SlBlCh
MCpAdml
Natural resources
+4.3
+4.1
+3.9
+3.7
+3.4
YTD %
return
International
Bill Gross: ‘Good times are over’
XC
LV
BL
IB
BL
GL
LC
LG
BL
LC
GL
GL
LC
IL
GT
EI
MP
EM
EM
LV
BL
IB
IL
LV
MT
MP
MP
MP
BL
LG
XG
MC
BL
IB
SP
XC
BL
WB
LG
IL
GT
LC
IB
BL
IL
LC
EM
MP
IB
GT
LG
BL
EI
SP
LG
MG
SG
IB
MP
MP
LV
SP
SP
MT
HB
IM
IB
SM
MC
LC
SB
SC
IB
BL
BL
LV
WB
EI
BL
MP
MP
MP
MP
MP
MP
MP
IL
XC
SP
XC
Vanguard Idx Fds TotStk
Vanguard Instl Fds InstIdx
Vanguard Instl Fds InsTStPlus
5­yr %
return
SciTech
SciTchA p
ScTechA
BlkOkEm
GlblTech I
+3.6
+3.6
+3.5
+3.3
+3.2
YTD %
return
+1.1
+0.6
+0.6
+0.5
+0.4
YTD %
return
Sector
AQR Funds
NewAlt
Rydex Investor
Invest Managers
Price Funds
MgdFutSt I
MgdFutStr
MgdFutSt I
RealAsset
YTD %
return
Balanced
StrTotRet r
Perpetual t
StrReRt r
RetInc
IdxAstAll A
Hussman Funds
Midas Funds
Fidelity Invest
Advance Capital I
Wells Fargo Adv A
Intermediate bond
ITExQual
ITBdAdml
ITGrAdm
StraFxdP
BdIdxInst
Dimensional Fds
Vanguard Admiral
Vanguard Admiral
PACE Funds P
TIAA­CREF Funds
Long­term bond
LTBnd
LTGrAdml
ExtDrGS4
ExtDurI
CorpBd
Vanguard Idx Fds
Vanguard Admiral
GuideStone Funds
Del Inv Instl
Fidelity Invest
Long­term U.S.
VanguardInstlFds
Wasatch
Fidelity Spartan
Vanguard Admiral
Price Funds
YTD %
return
Mortgage
Gold r
+12.0
PrecMM +11.8
GoldInv t +11.0
PrecMet +10.6
GoldPrec p +10.6
Legg Mason A
Victory Funds
Wright Funds
BMO Funds
TCW Funds
+2.2
+2.2
+2.1
+1.7
+1.4
ExDurTreas
USTryFd
SpLTTrAd r
LTsyAdml
USTLg
+2.0
+1.0
+0.8
+0.7
+0.5
YTD %
return
+1.5
+1.4
+1.1
+1.0
+1.0
YTD %
return
+2.8
+2.5
+2.1
+1.9
+1.2
YTD %
return
+5.9
+4.2
+3.7
+3.7
+3.5
YTD %
return
WAMtgBkA
FundFInc I
CurIn
MtgeIncY
TotRetBdI
+0.9
+0.8
+0.7
+0.6
+0.6
A WORD
ON OWNING
COMPANY
STOCK
Investing
Scott Burns
Syndicated columnist
Q: I
recently
began
employ­
ment with
Ama­
zon.com in
one of its
fulfillment
centers. I have the oppor­
tunity to participate in the
company 401(k) plan,
which is managed by Van­
guard. I am 29 years old.
The company plan offers
many investment options,
and I don’t know which
ones to choose.
Amazon does company
matching contributions —
50 cents for every dollar I
contribute, up to 4 percent
of my eligible compensa­
tion in a payroll period. I
am paid weekly. I plan to
contribute 8 percent of my
salary to the plan.
Amazon’s matching
contributions are initially
invested in the company
stock. I read that company
stock is considered riskier
than a stock mutual fund.
Is that true?
I have the option of
transferring my matching
contributions from the
company stock fund to any
other investment option
offered by the company
401(k) plan. Should I do
that?
The plan offers a long list
of moderate to aggressive
funds, managed funds and
index funds. And there is a
wide range of expense
ratios, with the highest at
nearly 1 percent. The plan
states that none of the
funds have a sales charge,
redemption fee or a de­
ferred sales charge.
A: Your plan compares
favorably with the vast
majority of plans available
to employees. I’d call it a
model plan except for one
thing. Owning company
stock in your company
401(k) is generally a bad
idea. So don’t interpret
anything I say as negative
about Amazon as a compa­
ny. The problem is that
shares of an individual
stock greatly increase the
risk of your retirement
account. Here’s why.
Defined­contribution
plans such as 401(k) plans
were created to supple­
ment or replace employer
pension plans.
For the most part, pen­
sions are now being closed,
and few workers your age
will retire with a pension
that guarantees lifetime
income. Instead, you will
have a tax­deferred sav­
ings plan, and you are
responsible for all your
saving and investment
decisions. How much you
save and your Social Secu­
rity benefits will be the
source of your retirement
income. That change alone
is a big increase in risk.
The loss of pension in­
come makes reasonable
risk and stability an impor­
tant part of your 401(k)
plan. And owning compa­
ny shares isn’t a reasonable
risk. It will greatly increase
the ups and downs of your
savings because the price
of a single stock is a lot
more volatile than the
price of a portfolio of
stocks.
Significantly, moving
your matching contribu­
tion to a broad stock fund,
such as Vanguard Institu­
tional Index Fund or Van­
guard Windsor II Fund,
would be a major reduc­
tion in risk for you. At the
same time, you would still
have a commitment to
future growth.
When it doubt, always
go for the low­cost index
fund. There are two rea­
sons for this. The first is
that low­cost index funds
are a known advantage.
The managed fund that
costs nearly 1 percent a
year has to overcome that
added cost just to keep up
with an index fund.
Questions:
[email protected]
Copyright 2015, Universal Press
Syndicate