This report reviews BAKER 401(k) 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 BAKER 401(k) PLAN can achieve reasonable investment results using asset allocation strategies.
Plan Review and Rating
Baker Hughes Incorporated and its subsidiaries supply wellbore related products, and technology services and systems for drilling, formation evaluation, completion and production, and reservoir technology and consulting to the oil and natural gas industry worldwide. It operates in two segments, Drilling and Evaluation, and Completion and Production.
BAKER 401(k) PLAN consists of 30 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 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
Small Growth: IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK
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 2036-2040: TZV
Target Date 2041-2045:
Target Date 2050+:
World Stock: IOO, VT
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 (51%)
Fund Quality -- Rated as (75%)
Portfolio Building -- Rated as (75%)
Overall Rating: (68%)
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 BAKER 401(k) 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 2, 2010)
Performance table (as of Dec 2, 2010)
|Portfolio Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|BAKER 401(k) PLAN Tactical Asset Allocation Moderate||6%||56%||7%||76%||9%||89%|
|BAKER 401(k) PLAN Strategic Asset Allocation Moderate||7%||80%||2%||15%||6%||41%|
|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 BAKER 401(k) PLAN participants.
To summarize, BAKER 401(k) PLAN plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.