Performance Monitoring Report

Transcription

1 Performance Monitoring Report First Quarter 2014 An Index Fund Advisors, Inc. Quarterly Fiduciary Report on the Performance of Peer Groups and their Comprised Funds. ABC Company 401(k) and Profit Sharing Plan (Demo Only)

2 Summary Fund Score Percentile DFA US Large Company (DFUSX) % DFA US Large Cap Value I (DFLVX) % DFA US Micro Cap I (DFSCX) % DFA US Small Cap Value I (DFSVX) % DFA Real Estate Securities I (DFREX) % DFA Intl Real Estate Securities I (DFITX) % DFA Intl Value I (DFIVX) % DFA Intl Small Company I (DFISX) % DFA Intl Small Cap Value I (DISVX) % DFA Emerging Markets I (DFEMX) % DFA Emerging Markets Value I (DFEVX) % DFA Emerging Markets Small Cap I (DEMSX) % DFA One-Year Fixed-Income I (DFIHX) % DFA Two-Year Global Fixed-Income I (DFGFX) % DFA Short-Term Government I (DFFGX) % DFA Five-Year Global Fixed-Income I (DFGBX) % Vanguard Inflation-Protected Secs Inv (VIPSX) % Vanguard Prime Money Market Inv (VMMXX) % Vanguard Total Bond Market II Idx Inv (VTBIX) % Vanguard Total Stock Mkt Idx Inv (VTSMX) % Vanguard Short-Term Federal Adm (VSGDX) % Vanguard Emerging Mkts Stock Idx (VEIEX) % Vanguard Total Bond Market Index Signal (VBTSX) % Vanguard Total Intl Stock Index Signal (VTSGX) % Vanguard Total Stock Mkt Idx Signal (VTSSX) % DFA Intermediate-Term Extnd Qlty Instl (DFTEX) % DFA US Vector Equity I (DFVEX) % * You have no funds under review.

3 Large Blend: Criteria Comparison Large Blend - Peer DFA US Large Vanguard Total Stock Vanguard Total Stock Group Average * Company (DFUSX) Mkt Idx Inv (VTSMX) Mkt Idx Signal (VTSSX) 3 Year Annualized Return % % % % 3 Year Annualized St. Dev % % % % 5 Year Annualized Return % % % % 5 Year Annualized St. Dev % % % % 10 Year Annualized Return 7.02 % 7.42 % 7.99 % 8.08 % 10 Year Annualized St. Dev % % % % Sharpe Ratio Turnover % 3.00 % 3.00 % 3.00 % Net Expense Ratio 1.17 % 0.08 % 0.17 % 0.05 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 49, , , , PB Ratio Total Holdings , , Avg Credit Rating N/A N/A N/A N/A Avg Effective Duration N/A N/A N/A N/A Score Percentile % % % 3

4 Large Value: Criteria Comparison Large Value - Peer Group Average * DFA US Large Cap Value I (DFLVX) 3 Year Annualized Return % % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 7.08 % 8.88 % 10 Year Annualized St. Dev % % Sharpe Ratio Turnover % % Net Expense Ratio 1.16 % 0.27 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 50, , PB Ratio Total Holdings Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 4

5 Mid-Cap Value: Criteria Comparison Mid-Cap Value - Peer Group Average * DFA US Vector Equity I (DFVEX) 3 Year Annualized Return % % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 8.83 % N/A 10 Year Annualized St. Dev % N/A Sharpe Ratio Turnover % 3.00 % Net Expense Ratio 1.29 % 0.32 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 8, , PB Ratio Total Holdings , Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 5

6 Small Blend: Criteria Comparison Small Blend - Peer Group Average * DFA US Micro Cap I (DFSCX) 3 Year Annualized Return % % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 8.54 % 9.29 % 10 Year Annualized St. Dev % % Sharpe Ratio Turnover % % Net Expense Ratio 1.32 % 0.52 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 1, PB Ratio Total Holdings , Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 6

7 Small Value: Criteria Comparison Small Value - Peer Group Average * DFA US Small Cap Value I (DFSVX) 3 Year Annualized Return % % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 8.77 % % 10 Year Annualized St. Dev % % Sharpe Ratio Turnover % % Net Expense Ratio 1.39 % 0.52 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 1, , PB Ratio Total Holdings , Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 7

8 Real Estate: Criteria Comparison Specialty-Real Estate - Peer Group Average * DFA Real Estate Securities I (DFREX) 3 Year Annualized Return 9.71 % 9.08 % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 7.50 % 8.22 % 10 Year Annualized St. Dev % % Sharpe Ratio Turnover % 1.00 % Net Expense Ratio 1.33 % 0.18 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 9, , PB Ratio Total Holdings Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 8

9 Global Real Estate: Criteria Comparison Global Real Estate - Peer Group Average * DFA Intl Real Estate Securities I (DFITX) 3 Year Annualized Return 6.83 % 7.97 % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 6.21 % N/A 10 Year Annualized St. Dev % N/A Sharpe Ratio Turnover % 5.00 % Net Expense Ratio 1.43 % 0.41 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 7, , PB Ratio Total Holdings Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 9

10 Foreign Large Blend: Criteria Comparison Foreign Large Blend - Peer Group Average * Vanguard Total Intl Stock Index Signal (VTSGX) 3 Year Annualized Return 5.74 % 5.17 % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 6.35 % 7.27 % 10 Year Annualized St. Dev % % Sharpe Ratio Turnover % 5.00 % Net Expense Ratio 1.30 % 0.16 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 28, , PB Ratio Total Holdings , Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 10

11 Foreign Small/Mid Value: Criteria Comparison Foreign Small/Mid Value - Peer Group Average * DFA Intl Small Cap Value I (DISVX) 3 Year Annualized Return 7.67 % % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 7.94 % % 10 Year Annualized St. Dev % % Sharpe Ratio Turnover % 9.00 % Net Expense Ratio 1.46 % 0.71 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 2, , PB Ratio Total Holdings , Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 11

12 Foreign Small/Mid Blend: Criteria Comparison Foreign Small/Mid Blend - Peer Group Average * DFA Intl Small Company I (DFISX) 3 Year Annualized Return 9.06 % 8.64 % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 9.83 % % 10 Year Annualized St. Dev % % Sharpe Ratio Turnover % 0.00 % Net Expense Ratio 1.43 % 0.56 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 2, , PB Ratio Total Holdings , Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 12

13 Foreign Large Value: Criteria Comparison Foreign Large Value - Peer Group Average * DFA Intl Value I (DFIVX) 3 Year Annualized Return 6.10 % 6.08 % 3 Year Annualized St. Dev % % 5 Year Annualized Return % % 5 Year Annualized St. Dev % % 10 Year Annualized Return 6.38 % 8.05 % 10 Year Annualized St. Dev % % Sharpe Ratio Turnover % % Net Expense Ratio 1.36 % 0.45 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 29, , PB Ratio Total Holdings Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 13

14 Diversified Emerging Mkts: Criteria Comparison Diversified Emerging Markets - Peer Group Average * DFA Emerging Markets I (DFEMX) DFA Emerging Markets Value I (DFEVX) DFA Emerging Markets Small Cap I (DEMSX) Vanguard Emerging Mkts Stock Idx (VEIEX) 3 Year Annualized Return % % % % % 3 Year Annualized St. Dev % % % % % 5 Year Annualized Return % % % % % 5 Year Annualized St. Dev % % % % % 10 Year Annualized Return 9.43 % % % % % 10 Year Annualized St. Dev % % % % % Sharpe Ratio Turnover % 4.00 % 8.00 % 4.00 % % Net Expense Ratio 1.61 % 0.61 % 0.61 % 0.82 % 0.33 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap 12, , , , PB Ratio Total Holdings , , , Avg Credit Rating N/A N/A N/A N/A N/A Avg Effective Duration N/A N/A N/A N/A N/A Score Percentile % % % % 14

15 Ultrashort Bond: Criteria Comparison Ultrashort Bond - Peer Group Average * DFA One-Year Fixed- Income I (DFIHX) 3 Year Annualized Return 0.86 % 0.62 % 3 Year Annualized St. Dev % 0.28 % 5 Year Annualized Return 2.02 % 0.99 % 5 Year Annualized St. Dev % 0.45 % 10 Year Annualized Return 1.92 % 2.20 % 10 Year Annualized St. Dev % 0.76 % Sharpe Ratio Turnover % % Net Expense Ratio 0.63 % 0.17 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap N/A N/A PB Ratio N/A N/A Total Holdings Avg Credit Rating N/A AA Avg Effective Duration Score Percentile % 15

16 Short Government: Criteria Comparison Short Government - Peer Group Average * DFA Short-Term Government I (DFFGX) Vanguard Short-Term Federal Adm (VSGDX) 3 Year Annualized Return 0.86 % 1.50 % 1.38 % 3 Year Annualized St. Dev % 1.29 % 1.04 % 5 Year Annualized Return 1.61 % 2.08 % 2.07 % 5 Year Annualized St. Dev % 1.76 % 1.34 % 10 Year Annualized Return 2.49 % 3.15 % 3.26 % 10 Year Annualized St. Dev % 2.50 % 1.77 % Sharpe Ratio Turnover % % % Net Expense Ratio 0.92 % 0.20 % 0.10 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap N/A N/A N/A PB Ratio N/A N/A N/A Total Holdings Avg Credit Rating N/A AAA AAA Avg Effective Duration Score Percentile % % 16

17 Intermediate-Term Bond: Criteria Comparison Intermediate-Term Bond - Peer Group Average * Vanguard Total Bond Market II Idx Inv (VTBIX) Vanguard Total Bond Market Index Signal (VBTSX) 3 Year Annualized Return 4.05 % 3.00 % 3.15 % 3 Year Annualized St. Dev % 2.82 % 2.82 % 5 Year Annualized Return 6.74 % N/A 4.39 % 5 Year Annualized St. Dev % N/A 2.96 % 10 Year Annualized Return 4.34 % N/A 4.50 % 10 Year Annualized St. Dev % N/A 3.44 % Sharpe Ratio Turnover % % % Net Expense Ratio 0.90 % 0.12 % 0.10 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap N/A N/A N/A PB Ratio N/A N/A N/A Total Holdings , , Avg Credit Rating N/A AA AA Avg Effective Duration Score Percentile % % 17

18 Corporate Bond: Criteria Comparison Corporate Bond - Peer Group Average * DFA Intermediate-Term Extnd Qlty Instl (DFTEX) 3 Year Annualized Return 6.32 % 4.43 % 3 Year Annualized St. Dev % 4.64 % 5 Year Annualized Return % N/A 5 Year Annualized St. Dev % N/A 10 Year Annualized Return 5.29 % N/A 10 Year Annualized St. Dev % N/A Sharpe Ratio Turnover % % Net Expense Ratio 0.88 % 0.22 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap N/A N/A PB Ratio N/A N/A Total Holdings Avg Credit Rating N/A A Avg Effective Duration Score Percentile % 18

19 Inflation-Protected Bond: Criteria Comparison Inflation-Protected Bond - Peer Group Average * Vanguard Inflation- Protected Secs Inv (VIPSX) 3 Year Annualized Return 2.55 % 3.27 % 3 Year Annualized St. Dev % 5.52 % 5 Year Annualized Return 4.35 % 5.31 % 5 Year Annualized St. Dev % 5.94 % 10 Year Annualized Return 3.93 % 4.59 % 10 Year Annualized St. Dev % 6.52 % Sharpe Ratio Turnover % % Net Expense Ratio 0.80 % 0.20 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap N/A N/A PB Ratio N/A N/A Total Holdings Avg Credit Rating N/A AAA Avg Effective Duration Score Percentile % 19

20 Money Market - Taxable: Criteria Comparison Money Market - Taxable - Peer Group Average * Vanguard Prime Money Market Inv (VMMXX) 3 Year Annualized Return 0.02 % 0.03 % 3 Year Annualized St. Dev % 0.01 % 5 Year Annualized Return 0.04 % 0.14 % 5 Year Annualized St. Dev % 0.09 % 10 Year Annualized Return 1.34 % 1.74 % 10 Year Annualized St. Dev % 0.56 % Sharpe Ratio Turnover % N/A Net Expense Ratio 0.56 % 0.17 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap N/A N/A PB Ratio N/A N/A Total Holdings N/A N/A Avg Credit Rating N/A N/A Avg Effective Duration N/A N/A Score Percentile % 20

21 World Bond: Criteria Comparison World Bond - Peer Group Average * DFA Two-Year Global Fixed-Income I (DFGFX) DFA Five-Year Global Fixed-Income I (DFGBX) 3 Year Annualized Return 3.42 % 0.76 % 2.94 % 3 Year Annualized St. Dev % 0.29 % 2.38 % 5 Year Annualized Return 7.32 % 1.22 % 3.66 % 5 Year Annualized St. Dev % 0.47 % 2.50 % 10 Year Annualized Return 4.80 % 2.24 % 3.60 % 10 Year Annualized St. Dev % 0.84 % 2.51 % Sharpe Ratio Turnover % % % Net Expense Ratio 1.08 % 0.18 % 0.28 % Avg Manager Tenure (in years) ** Geometric Avg Mkt Cap N/A N/A N/A PB Ratio N/A N/A N/A Total Holdings Avg Credit Rating N/A AA AA Avg Effective Duration Score Percentile % % 21

22 Performance Monitoring System Introduction The investment advisor has implemented a set of monitoring guidelines to ensure that all funds used in the 401k plans meet IFA s standard of sound investment. The guidelines include a fiduciary monitoring scoring system to analyze every fund in your 401k plan on the basis of 15 factors as shown in Table 1. Monitoring vs. Selection IFA monitors the ongoing prudence of the Funds in its portfolios. IFA uses framework of Modern Portfolio Theory rather than the monitoring guidelines to select the Funds in IFA s 401(k) plans. Almost all live mutual fund returns data are insufficient to provide meaningful information about expectations of the future investment performance. Nevertheless, all selections at the time of inclusion are prudent according to the monitoring guidelines and are monitored on an ongoing basis to ensure they remain prudent. Scoring System Using the factors listed in Table 1, each fund is assigned an aggregate score between 0 (Worst) to 100 (Best) by summing individual scores for the 15 factors mentioned above. If the fund scores greater than it is considered satisfactory. If a fund falls below it will be Under Review and may be removed from your 401(k) plan. Note on Money Market Funds: Morningstar does not widely provide information on the total number of holdings, the average credit rating, turnover, and average effective duration for money market funds. In order to put Money Market funds on the same 0 to 100 scale, IFA increased the other factors weights proportionally. Note on Fund of Funds: Many 401(k) plans include funds of funds. A common example is a Target Date Retirement Fund. For a fund of funds, IFA analyzes each of the underlying fund components separately as if it was individually included in your 401(k). Each underlying fund must score above or the fund of funds itself will be under review. Below is the scoring system for each of the 15 factors. Funds are scored based on how they perform relative to their peers. IFA assigns points for each factor according to which quartile the fund falls relative to its peers: First Quartile: the score if a fund performs above the 25th percentile of its peers ranked from best to worst Second Quartile: the score if the fund performs between 25th (inclusive) and 50th percentile compared to its peers ranked from best to worst Third Quartile: the score if the fund performs between 50th (inclusive) and 75th percentile compared to its peers ranked from best to worst Fourth Quartile: the score if the fund performs below the 75th percentile to its peers ranked from best to worst In this system, factors that can be directly controlled such as net expense ratio, turnover, and total number of holdings are given more weight compared to factors that are less directly controlled such as annual return. This strategy is consistent with developing a prudent process for 401(k) portfolio management.

23 Table 1: Prudent Monitoring Factors and Their Weights 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile Factors 1 3-Year Annualized Return (Ranked from Highest to Lowest) Year Annualized Standard Deviation (Ranked from Lowest to Highest) Year Annualized Return (Ranked from Highest to Lowest) Year Annualized Standard Deviation (Ranked from Lowest to Highest) Year Annualized Return (Ranked from Highest to Lowest) Year Annualized Standard Deviation (Ranked from Lowest to Highest) Sharpe Ratio (Ranked from Highest to Lowest) Turnover (Ranked from Lowest to Highest) Net Expense Ratio (Ranked from Lowest to Highest) Manager Tenure (Ranked from Longest to Shortest) Geometric Average Market Cap Equity Funds Only (Ranked from Lowest to Highest) P/B Ratio Equity Funds Only (Ranked from Lowest to Highest) Total # of Holdings (Ranked from Greatest to Fewest) Average Credit Rating Fixed Income Funds Only (Ranked Highest to Lowest) Average Effective Duration Fixed Income Funds Only (Ranked from Lowest to Highest) Summary This monitoring evaluation will be conducted on a quarterly basis for your 401k plans to ensure the funds in your plan conform to IFA s fiduciary standards according to this scoring system. Those funds that achieve a satisfactory score are considered viable and will be kept in the 401k plan. Funds under review will be discussed together between IFA and plan sponsors/co-fiduciaries to determine if further action is required. A fund under review may be, but is not required, to be removed from your plan.

24 Glossary of Terms Annualized Return: The rate of return which when compounded produces a fund s total return during the period under observation. Standard Deviation: A statistical measurement of dispersion around an average, which, for a mutual fund, depicts how widely the returns varied over a certain period of time. When a fund has a high standard deviation, the predicted range of short-term performance is wide, implying greater volatility. Sharpe Ratio: A risk-adjusted measure developed by Nobel Laureate William Sharpe. It is calculated by using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better the fund's historical risk-adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a fund's annualized excess returns by the standard deviation of a fund's annualized excess returns. Turnover: This is a measure of the fund's trading activity which is computed by taking the lesser of purchases or sales (excluding all securities with maturities of less than one year) and dividing by average monthly net assets. A turnover ratio of 100% or more does not necessarily suggest that all securities in the portfolio have been traded. In practical terms, the resulting percentage loosely represents the percentage of the portfolio's holdings that have changed over the past year. Net Expense Ratio: The percentage of fund assets used to pay for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund's NAV. Sales charges are not included in the expense ratio. The expense ratio for fund of funds is the aggregate expense ratio, defined as the sum of the sponsor s fees plus the estimated weighted average of the underlying funds fees. Manager Tenure: The number of years that the current manager has been managing the investment. In the case of a team, the longest manager tenure is used. Geometric Average Market Cap: Geometric average of the total equity market value of companies in a fund, expressed in millions of dollars. It equals shares outstanding times the stock price. Price-to-Book Ratio: The P/B ratio of a company is a ratio measuring a company s per-share market price to a company s per-share book value. The per share book value is the value of a company s tangible assets divided by the number of its shares. This figure may not always represent the real value of a company because it excludes such intangible assets as patents and trademarks. A high P/B ratio indicates that the price of the stock exceeds the actual worth of the company s assets. Total Number of Holdings: Number of separate securities held by the mutual fund. Credit Rating: An average credit quality for all of a fund s bond holdings. Because it's rare to find individual bonds in a portfolio with a rating below B, the average credit quality of bond funds in Morningstar's database ranges from AAA (highest) to B (lowest). U.S. Government bonds carry the highest credit rating, while bonds issued by speculative or bankrupt companies usually carry the lowest credit ratings. Anything at or below BB is considered a high-yield or "junk" bond. Effective Duration: A measure of a fund's interest-rate sensitivity--the longer a fund's duration, the more sensitive the fund is to shifts in interest rates. Duration is determined by a formula that includes coupon rates and bond maturities. Small coupons tend to increase duration, while shorter maturities and higher coupons shorten duration. The relationship between funds with different durations is straightforward: A fund with a duration of 10 years is twice as volatile as a fund with a five-year duration. Morningstar prints an average effective duration statistic that incorporates call, put, and prepayment possibilities.