February 8, 2010
Defined Benefit Plans Beat 401(k)s By More Than 1%
Defined benefit plans delivered an average return of 10.13% between 1995 and 2007, whereas 401(k) plans rose an average of 9.06% a year, according to a report from consulting firm Towers Watson. While that differential is just over one percentage point, the six largest DB plans analyzed outperformed the six smallest by three percentage points in that timeframe.
The 1% average long-term edge continued in 2008, even though both types of plans lost value. However, whereas defined contribution plans lost 10% or more - some plummeting by as much as 40% - some pension plans reported small positive returns. In fact, the median investment return of DB plans in 2008 was 25.27%, whereas the median return of DC plans was -26.20%.
The 2008 results were based on a survey of 79 employers that sponsor both a pension and a 401(k), based on a Towers Watson survey of firms' Form 5500.
A broader analysis of more than 2,000 plan sponsors, based on Form 5500 filed with the Department of Labor, found DB plans had a median return average of 7.71%, and DC plans 6.78%. This finding is consistent with earlier analyses that showed DB plans outperforming DC plans by one percentage point in both bull and bear stock markets.
"Participants in 401(k)s were less likely than DB plan sponsors to rebalance their asset portfolios while stock values ran up, leaving them more vulnerable to market declines," explained Mark Ruloff, a senior consultant at Towers Watson. "Many DB sponsors had been reducing their exposure to equities and already shifted toward more conservative investment strategies in 2007, which helped to mitigate their losses."
ETF Council Set to Launch
The ETF Council, a new trade organization for exchange-traded funds that will focus on both marketing and lobbying, is set to launch this month.
The mastermind behind the new venture is Irving Straus, of public relations firm Straus Corporate Communications, who also founded the Mutual Fund Education Alliance, which promotes direct-sold funds.
"Up until now, [ETFs] have been bringing in assets based primarily on new product introduction, and what I'm telling those that listen in the industry - and they are listening - is that this is going to dry up in due course, or at least become much less of a factor," said the 89-year-old Straus. "You're going to have to get out there and market the value of ETFs versus other investment options."
The Investment Company Institute has a committee dedicated to ETFs, but, as Straus notes, it is not in the ICI's interest to promote the value of ETFs over traditional mutual funds. "The ETF industry doesn't need to pick a fight against funds, but it does need to educate the public [about] what ETFs are all about," Straus said. "The industry has been using the easy ideas. Now is the time when people will decide if they want traditional funds, ETFs or both." MME
iShares' Country ETF Blitz
iShares has registered nine additional country-specific exchange-traded funds with the Securities and Exchange Commission.
The first batch was for: the iShares MSCI Poland Investable Market Index, iShares MSCI China Small-Cap Index, iShares MSCI Indonesia Investable Market Index and iShares MSCI New Zealand Investable Market Index funds.
The second filing covered: the iShares MSCI USA Index, iShares MSCI Brazil Small Cap Index, iShares MSCI Egypt Capped Investable Market Index, iShares MSCI Ireland Capped Investable Market Index, iShares MSCI Russia Capped Index and iShares MSCI Philippines Investable Market Index funds.
The iShares funds will face competition; earlier this year, the Market Vectors Poland ETF launched, and there already are several ETFs covering small-cap stocks in China, including the Claymore/Alpha Share China Small Cap Fund, as well as the Market Vectors Indonesia ETF. Van Eck and Market Vectors also offer small-cap Brazil ETFs.
In addition, PowerShares and State Street have Ireland ETFs in registration; Van Eck and Global X are planning Egypt ETFs, and Global X is readying a Philippines ETF. MME
WisdomTree to Pull The Plug on 10 ETFs
Ten struggling exchange-traded funds that have attracted less than $18 million, or 3% of WisdomTree's $6 billion in assets under management, will be shut down on March 24. Nine of the funds concentrate on equity sectors, and the 10th, on short-term government bonds.
"We propose the closure of 10 ETFs in order to create capacity for future growth initiatives and dedicate our resources to areas of greater client interest," said Jonathan Steinberg, chief executive officer of WisdomTree.
"We have no plans to make any further closures and are fully committed to developing an innovative product line, including the introduction of new funds," Steinberg added.
The 10 WisdomTree funds scheduled to close are: International Technology Sector, International Financial Sector, International Health Care Sector, International Consumer Staples, International Consumer Discretionary, International Industrial Sector, International Communications Sector, Europe Total Dividend, Earnings Top 100 and U.S. Short Term Government Income.
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