This report reviews BRISTOL-MYERS SQUIBB COMPANY SAVINGS AND INVESTMENT PROGRAM plan. We will discuss the investment choices and present the plan rating.
Despite being a leading edge global company, the retirement plan is old style and lacks the breadth of asset classes we would want to see. Despite that, with appropriate asset class portfolios, returns in the 6-9% range have been achieved with a moderate portfolio.
Plan Review and Rating
Bristol-Myers Squibb (BMY), a global biopharmaceutical company, engages in discovering, developing, and delivering medicines that help patients prevail over serious diseases. The company focuses on areas of serious unmet medical need, such as effective (psychiatric) disorders, Alzheimers/dementia, cardiovascular (primarily atherosclerosis/thrombosis), diabetes, hepatitis, HIV/AIDS, obesity, oncology, rheumatoid arthritis and related diseases, and solid organ transplants.
Their savings and investment program consists of 26 funds. These funds enable participants to gain exposure to 3 major assets: US Equity, Foreign Equity, Fixed Income. The list of minor asset classes covered:
Foreign Large Blend: EFA, VEU, GWL, PFA
Foreign Large Growth: EFG
Intermediate-term Bond: AGG, CIU, BIV, BND
Large Blend: IVV, IYY, IWV, VTI, VV, SPY, DLN, RSP, SCHX
Large Growth: IVW, IWZ, JKE, VUG, ELG, QQQQ, RPG, SCHG
Large Value: IVE, IWW, JKF, VTV, ELV, PWV, RPV, SCHV
Mid-cap Blend: IJH, IWR, JKG, VO, MDY, EMM, PJG, DON, EZM, MVV
Mid-cap Growth: IJK, IWP, VOT, EMG, PWJ, RFG, UKW
Mid-cap Value: IJJ, IWS, JKI, VOE, EMV, PWP, RFV, UVU
Small Blend: IJR, IWM, JKJ, VB, DSC, PJM, DES, SAA, UWM, SCHA
Target Date 2000-2010: TZD
Target Date 2011-2015: TZE
Target Date 2016-2020: TZG
Target Date 2021-2025: TZI
Target Date 2026-2030: TZL
Target Date 2031-2035: TZO
Target Date 2036-2040: TZV
Target Date 2041-2045:
Target Date 2050+:
As of Dec 2, 2010, this plan investment choice is rated as based on our Plan Rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:
Diversification -- Rated as (30%)
Fund Quality -- Rated as (45%)
Portfolio Building -- Rated as (54%)
Overall Rating: (44%)
This is on the low end, and would be improved with additional asset classes.
Current Economic and Market Conditions
There are initiatives to help the economy recover, but housing and jobs remain on the top of most peoples' minds. Recent important items:
- The Federal Reserve embarked on Quantitative Easing II (QE2) to stimulate the economy.
- The housing market is still at its low but largely stabilized.
- The unemployment rate is stuck at 9%.
Americans continue to face an uncertain future, given (among others) the high unemployment rate, large federal and local government debts and global trade imbalance. With such an economic backdrop, the stock and debt markets are going to be volatile. Despite this, markets have been resilient and appear positioned to rebound.
In this market, it is even more critical to properly diversify and respond to market changes. We offer two asset allocation strategies: strategic and tactical asset allocation strategies (SAA and TAA for participants in BRISTOL-MYERS SQUIBB 401(K)).
Strategic Asset Allocation is based on well known modern portfolio theory and its key features include: diversification, proper fund selection and periodically re-balancing.
Tactical Asset Allocation works on a diversified array of assets provided by funds in a plan and adjusts asset mixes based on market conditions such as asset price momentum utilized by TAA.
The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purposes, we also include the moderate model portfolios of a typical 3 asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETF equivalents:
US Equity: SPY or VTI
Foreign Equity: EFA or VEU
Fixed Income: AGG or BND
Performance chart (as of Dec 2, 2010)
click to enlarge
Performance table (as of Dec 2, 2010)
|Portfolio Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|BRISTOL-MYERS SQUIBB COMPANY SAVINGS AND INVESTMENT PROGRAM Tactical Asset Allocation Moderate||7%||64%||6%||66%||9%||84%|
|BRISTOL-MYERS SQUIBB COMPANY SAVINGS AND INVESTMENT PROGRAM Strategic Asset Allocation Moderate||9%||110%||2%||9%||6%||34%|
|Three Core Asset ETF Index Funds Tactical Asset Allocation Moderate||-4%||-35%||1%||9%||4%||27%|
|Three Core Asset ETF Index Funds Strategic Asset Allocation Moderate||9%||60%||-0%||-3%||4%||13%|
Currently, asset classes in US Equity (SPY, VTI), Foreign Equity (EFA, VEU) and Fixed Income (AGG, BND) are doing relatively well. These asset classes are available to BRISTOL-MYERS SQUIBB COMPANY SAVINGS AND INVESTMENT PROGRAM participants.
The plan beats the three asset class benchmarks, but would fail to beat a four asset class benchmark. Adding one or two more asset classes could bring an additional 2-3% in annual returns.
To summarize, BRISTOL-MYERS SQUIBB COMPANY SAVINGS AND INVESTMENT PROGRAM plan participants can achieve better investment returns by adopting asset allocation strategies that are tailored to their risk profiles.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.