This report reviews Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account 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 Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan can achieve reasonable investment results using asset allocation strategies.
Plan Review and Rating
Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan's 401K plan consists of 55 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, Commodity, Emerging Market Equity, Fixed Income. The list of minor asset classes covered:
Commodities Broad Basket: GSG, DBC
Conservative Allocation: AOK
Diversified Emerging Mkts: EEM, GMM, PXH, DEM, SCHE
Diversified Pacific/asia: EPP, VPL, GMF, PAF
Equity Energy: ITE, IXC, IPW, DBE, RYE, DKA
Europe Stock: IEV, VGK, PEF, DEB
Foreign Large Blend: EFA, VEU, GWL, PFA
Foreign Small/mid Growth: IFSM, VSS, SCHC
Health: IYH, IXJ, VHT, XBI, PBE, DBR, RYH
Inflation-protected Bond: TIP
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
Latin America Stock: ILF, GML
Long Government: TLT, TLH, IEF, EDV, VGLT, TLO, PLW
Mid-cap Value: IJJ, IWS, JKI, VOE, EMV, PWP, RFV, UVU
Multisector Bond: AGG, GBF, BND, LAG
Natural Resources: IYM, IGE, VAW, XLB, XME, PYZ, DBN, RTM, UYM
Pacific/asia Ex-japan Stk: EPP, AAXJ, GMF, PAF, DND
Short Government: SHY, SHV, VGSH, PLK, USY
Short-term Bond: CSJ, BSV, VCSH
Small Growth: IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK
Technology: MTK, PTF, DBT, RYT, ROM
As of Dec 2, 2010, this plan investment choice is rated as 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 (91%)
Fund Quality -- Rated as (48%)
Portfolio Building -- Rated as (84%)
Overall Rating: (75%)
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 Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account 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 4 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)
Emerging Market Equity: (EEM or VWO)
Fixed Income: (AGG or BND)
Performance chart (as of Dec 2, 2010)
Performance table (as of Dec 2, 2010)
|Portfolio Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan Tactical Asset Allocation Moderate||6%||44%||7%||51%||16%||109%|
|Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan Strategic Asset Allocation Moderate||12%||119%||3%||21%||9%||61%|
|Four Core Asset ETF Index Funds Emerging Markets Tactical Asset Allocation Moderate||1%||6%||6%||49%||12%||78%|
|Four Core Asset ETF Index Funds Emerging Markets Strategic Asset Allocation Moderate||10%||75%||2%||6%||7%||31%|
Currently, asset classes in Foreign Equity (EFA,VEU), Emerging Market Equity (EEM,VWO) and Fixed Income (AGG,BND) are doing relatively well. These asset classes are available to Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan participants.To summarize, Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.