Second Quarter 2020 Vista 401(K) Plan Performance, June 30, 2020
By Michael Sheridan, Senior Consultant
Even though I have lived in Tallahassee for almost half my life and consider myself to be a Floridian, my hometown is forever Miami. I wish to express my deep concern for everyone in South Florida during this terrible time, as well as the rest of our world. Yes, these events have had a dramatic and unprecedented impact on your retirement plan’s funds, but it is currently not as bad as it was just a few months ago.
As you know, the plan had well above historic averages performance last year and gave it all back early in 2020. It is now almost back to even for the year. Hopefully, you are not trying to guess the market and are riding it out after making some small balancing adjustments.
I continue my concern for the impact of the large-cap tech growth stocks, known as FAANG stocks, that are dominating the markets’ performance and not giving us a true story of the impact of the pandemic on our economy. Small and mid-cap stocks have not performed that well for the year and international stock markets have suffered. Again, probably not as bad as they could have.
Bond yields are low, but values are decent. Getting a 6.5% gain this year, so far, without factoring in interest received, which is used by the fund managers to buy more shares for your account, is a pretty good return for a conservative US Government Bond fund, managed for our plan by American Century.
I think we all correctly sense that all of these Government support expenditures and the consequent big federal budget deficit will end up triggering inflation again in the future. Those of you who have diversified some of your funds into the American Century Inflation Adjusted Bond fund are smart and the 5.1% YTD (year to date) gain is rewarding. Likewise, the Fidelity Total Bond fund’s slow but steady growth and their 5.4% YTD gain is satisfying.
We will continue to monitor these bond funds to make sure that they do not “chase returns” by adding low grade bonds (junk bonds) to their funds just to get the higher yields. We had that problem years ago and removed the funds from the plan. That practice is against our Statement of Policy which dictates our practices.
The Federal Reserve has stated that they intend to keep interest rates between about 2 ½% and 0% for the next couple of years, and that will dictate that low and hopefully steady state practices (read: safe) are appropriate investment opportunities.
I feel my job is try to advise all of you and the plan’s managers and your Advisory Council as to the safest way to hold on to your retirement funds this year. Conserving what you have already, possibly with a small gain by this calendar year’s end, seems like the best advice I can give. I don’t want us to venture into seeking yields and chasing returns from risky investments that should not be in retirement plans.
For our large cap funds, I am particularly disappointed in our new addition as our most conservative stock fund, the JPMorgan Equity Income fund. We will seek some answers, but their inclusion, rightly so, of energy stock companies and banks, has hurt their performance more than any other fund in the plan.
All of the Balanced funds and Target funds are performing about as expected so far considering their composition. Our two International funds are performing as expected, unfortunately showing loses.
Global stock funds, in general, gained a sector average of 18.1% for the quarter, which still put them down an average of 9.2% for the year. Volatile!
What really pleasantly surprised me is that a top performer, Fidelity Growth Strategies, a mid-cap fund, is doing so well with a 4.5% gain YTD. I would not have predicted that accomplishment and again praise the value of your diversity.
Our top performer is the T. Rowe Price Blue Chip Growth fund, which has done a great job of balancing tech stock companies with the pandemic’s impact on the market. It is up 10.9% YTD, and that puts it into a stratosphere almost by itself.
To put all of this in overall market context, the stock market lost about 24.6% on average during the first quarter but rallied in the second quarter so that funds are still down 3.1% for the year. Volatile!
I suggest that you continue to diversify, diversify, diversify and hold decent positions in bond funds and stock funds. Take the Investment Risk Profile quiz on our website and see if you might benefit from around a 50-30% Stock, 50-70% bond mix until the world becomes clearer.
June 2020 Fund Performance Chart