Thursday, June 07, 2007

Alternative 401(k) Plan Structures

Zvi Bodie has made a number of concrete recommendations to improve the structure of Defined Contribution Plans:

"First, to enable participants in employer-sponsored 401k-type plans to hedge minimum levels of retirement income, employers should offer inflation-protected annuities in the plan.

Second, advisors should explicitly take account of the individual's willingness to postpone retirement in suggesting an optimal asset allocation. The greater one's willingness to continue working past the expected retirement date, the greater the proportion of one's assets should be invested in stocks.

Third, sponsors of self-directed investment plans can enhance the risk-reward opportunities available to investors by offering option like securities or contracts as an additional asset class. These assets can provide a means of leveraging participation in stock market gains while protecting one's minimum standard of living."

Wednesday, June 06, 2007

SRI in 401(k)

The Social Investment Forum commissioned a study to benchmark socially responsive investing in Defined Contribution Plans in the US. The study provides; a current perspective on the popularity of SRI (19% of DC plan sponsor respondents currently offer 1 or more SRI options), It may be worth considering whether the studies conclusions are representative of the market given the respondent base was only 129 plans however, other useful information in the survey included an outline of fiduciary legislation and interpretation on the issue of SRI (SRI options are acceptable within ERISA plans though the same requirements for due diligence apply to SRI and non-SRI funds) and a process and resource guide to adding SRI investments to a Plan.

Tuesday, June 05, 2007

Investment Advisor's Top Mutual Funds

Though investors may actually be disadvantaged by the popularity of their mutual funds, they can gain some comfort in knowing that their funds are also being utilized by professional investors. A new website, Advisor Perspectives purports to show the 25 most popular mutuals funds and ETF's by category which are used by a universe of investment advisors for their high and ultra high net worth investors. According to the Website, the data is gathered from 48K individual investor accounts covering $38 billion in marketable securities and funds with a $900k average account size. The top 15 most popular funds are reproduced below though the site provides additional lists by fund category and style:

1 ISHARES TRUST MSCI EAFE FUND
2 JP MORGAN INTERMEDIATE TAX FREE SELECT FUND
3 DODGE AND COX INTERNATIONAL STOCK FUND
4 S&P DEP RECEIPTS
5 AMERICAN EUROPACIFIC GROWTH FUND
6 ISHARES MSCI JAPAN IN
7 PIMCO TOTAL RETURN FUND
8 JULIUS BAER INTERNATIONAL EQUITY FUND
9 VANGUARD 500 INDEX FUND
10 GROWTH OF AMERICA FUND
11 MATTHEWS ASIAN GROWTH AND INCOME FUND
12 DODGE AND COX STOCK FUND
13 FIDELITY DIVERSIFIED INTERNATIONAL FUND
14 FIRST EAGLE SOGEN OVERSEAS FUND
15 PIMCO REAL RETURN FUND

Monday, June 04, 2007

Harvard's Investment Advice


Dr. Mohamed A. El-Erian, President and CEO of Harvard Management Company, Deputy Treasurer of Harvard University, and member of the faculty of the Harvard Business School was interviewed by Fortune magazine and provides a 4 point strategy for investors:

1) Diversify and internationalize - growth rates are higher outside the US and commodity exposure provides diversification and a hedge against middle eastern "events."
2)Private equity's huge appetite for targets will propel large cap US stocks ahead of small caps.
3)Inflation protect your portfolio. US productivity gains and the impact of global labor outsourcing will diminish over time.
4) Be aware of the huge potential impacts of soverign wealth funds (SWF's). According to Morgan Stanleys estimates, the world’s SWFs could grow from US$2.5 trillion now to nearly US$12 trillion by 2015, and could exceed the total size of the world’s official reserves within five years, i.e., by end-2011.