FedEx Corporation (FDX) provides transportation, e-commerce and business services in the United States and internationally. It operates in four segments: FedEx Express, FedEx Ground, FedEx Freight and FedEx Services. The company was founded in 1971 and is headquartered in Memphis, Tennessee.
We report on the FedEx 401K Plan for Pilots. We discuss investment choices and present plan rating. Their plan consists of 23 funds. These funds enable participants to gain exposure to three major assets: U.S. Equity, Foreign Equity, Fixed Income.
The list of minor asset classes covered:
Conservative Allocation: (AOK)
Foreign Large Blend: (EFA), (VEU), (GWL), (PFA)
Foreign Large Value: (EFV), (PID), (DWM)
Inflation-protected Bond: (TIP)
Intermediate-term Bond: (AGG), (CIU), (BIV), (BND)
Large Blend: (IVV), (IYY), (IWV), (VTI), (VV), (SPY), (DLN), (RSP), (SCHX)
Large Value: (IVE), (IWW), (JKF), (VTV), (ELV), (PWV), (RPV), (SCHV)
Mid-cap Blend: IJH, (IWR), (JKG), (VO), (MDY), (EMM), (PJG), (DON), (EZM), (MVV)
Moderate Allocation: (AOM)
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+:
|Asset Class||Number of funds|
|Emerging Market Equity||0|
With a large number of balanced or target date funds, participants don't have a great deal of freedom to build a high performance portfolio using asset allocation. The number of funds in the U.S. asset class is fine, foreign equity is OK but there should be more funds in fixed income and, ideally, at least one more asset class. The plan rating will reflect this.
As of Jan 5, 2011, this plan 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:
Diversification - Rated as below average (15%)
Fund Quality - Rated as average (43%)
Portfolio Building - Rated as average (40%)
Overall Rating - Below average (33%)
With current economic and market conditions, 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.
2010 ended very strongly for U.S. equities. Going forward, it is going to be increasingly important to have a wide range of asset classes including commodities and real estate as inflation is likely to creep in as U.S. government intervention in the economy has to be funded.
In this market it is even more critical to properly diversify and respond to market changes. MyPlanIQ offers two asset allocation strategies: Strategic and tactical asset allocation strategies (SAA and TAA for participants in the FedEx plan.
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 purpose, we also include the moderate model portfolios of a typical three 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 Jan 5, 2011)
Click to enlarge
Performance table (as of Jan 5, 2011)
|Portfolio Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Federal Express (FedEx) 401K Plan for Pilots Tactical Asset Allocation Moderate||6%||50%||6%||65%||7%||64%|
|Federal Express (FedEx) 401K Plan for Pilots Strategic Asset Allocation Moderate||8%||87%||3%||21%||5%||35%|
|Three Core Asset ETF Index Funds Tactical Asset Allocation Moderate||-2%||-21%||2%||20%||4%||33%|
|Three Core Asset ETF Index Funds Strategic Asset Allocation Moderate||10%||73%||2%||7%||4%||16%|
Currently, Commodities, U.S. Equity and Emerging Market are doing well. Only U.S. Equity is available to Federal Express plan participants.
This plan beats the three asset benchmark by virtue of the U.S. asset class choices. If would be a stronger plan with more fixed income choices and an additional asset class.
To summarize, FedEx 401K Plan participants can achieve the best investment returns by adopting asset allocation strategies that are tailored to their risk profiles.
Federal Express would do well by its employees to consider reviewing its existing funds and adding an additional asset class.