Aflac Incorporated is a Fortune 500 company based in Columbus, Georgia and was founded by John, Paul and Bill Amos founded Aflac in 1955. Aflac introduced one of the world's first cancer policies in 1958. Since the 1980s, Aflac has added many other policies, including accident, short-term disability, hospital intensive care, hospital confinement indemnity, lump sum cancer, lump sum critical illness, specified health event, life, dental, and vision.
Aflac has a presence in all 50 United States and in Guam, Puerto Rico, and the Virgin Islands. Aflac has more than 70,000 licensed agents and insures more than 50 million people worldwide.
Assets at year-end 2009 totaled more than $84 billion with annual revenues of more than $18 billion.We report on their 401(k) Savings and Profit Sharing Plan . We will discuss the investment choices and present the plan rating by MyPlanIQ. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how participants in Aflac Incorporated 401(k) Savings and Profit Sharing Plan can achieve reasonable investment results using asset allocation strategies.
Their 401K plan consists of 11 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
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 Growth: IJK, IWP, VOT, EMG, PWJ, RFG, UKW
Moderate Allocation: AOM
Small Growth: IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK
Number of funds
In general, six funds for the US is good but the international and fixed income choices are too few for a high rating. In addition, adding an additional asset class in emerging markets or real estate would increase the ratings
As of Dec 9, 2010, this plan investment choice is rated as below average based on MyPlanIQ Plan Rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:
Diversification -- Rated as average (38%)
Fund Quality -- Rated as below average (10%)
Portfolio Building -- Rated as below average (32%)
Overall Rating: below average (27%)
Current Economic and Market Conditions
We have experienced an uncertain 2010: plenty of worries on whether the US economy will climb out of the great recession and recover.
- 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 market changes. MyPlanIQ offers two asset allocation strategies: strategic and tactical asset allocation strategies (SAA and TAA for participants in Aflac Incorporated 401(k) Savings and Profit Sharing 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 3 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:
US Equity: SPY or VTI
Foreign Equity: EFA or VEU
Fixed Income: AGG or BND
Performance chart (as of Dec 9, 2010)
Performance table (as of Dec 9, 2010)
|Portfolio Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Aflac Incorporated 401(k) Savings and Profit Sharing Plan Tactical Asset Allocation Moderate||6%||58%||5%||62%||8%||79%|
|Aflac Incorporated 401(k) Savings and Profit Sharing Plan Strategic Asset Allocation Moderate||11%||94%||-0%||-3%||4%||20%|
|Three Core Asset ETF Index Funds Tactical Asset Allocation Moderate||-2%||-20%||1%||10%||4%||29%|
|Three Core Asset ETF Index Funds Strategic Asset Allocation Moderate||11%||75%||-0%||-3%||4%||14%|
Currently, asset classes in US Equity, emerging markets and real estate are doing well. Participants in this plan gain benefit from the US equity.
This plan beats the three asset benchmark by virtue of the US asset class choices. If would be a stronger plan with more fixed income choices and an additional asset class.
To summarize, Aflac Incorporated 401(k) Savings and Profit Sharing Plan plan participants can achieve the best investment returns by adopting asset allocation strategies that are tailored to their risk profiles.
Aflac would do well by their employees to consider reviewing their existing funds and adding an additional asset class.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.