Fee-adjusted benchmarks in VA 529?

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Fee-adjusted benchmarks in VA 529?

Postby Mark13 » Sun Dec 30, 2012 9:57 pm

The benchmarks for the VA 529 evolving portfolios all include the phrase "+ 100 basis points". From the documentation:

"The Portfolio Benchmark is a blended composite benchmark that reflects the asset allocation of the Portfolio over time, appropriate strategic benchmark index components for each underlying investment manager, and an adjustment reflecting the inVEST administrative fee for the Portfolio."

For instance, the evolving portfolio which is currently 50/50 has an expense ratio of 0.61, which includes the VEST program administrative fee of 0.20. The benchmark info reads:

"13.75% S&P 500 / 3.75% Russell 2500/ 3.75% MSCI US Small Cap 1750 / 13.75% MSCI AC EAFE / 7.5% MSCI Emerging Markets / 7.5% FTSE EPRA-NAREIT Developed Real Estate / 5% Barclays Corporate High Yield / 10% JP Morgan Emerging Bond Market Index Global Diversified / 15% Barclays Capital Aggregate / 20% T-Bills + 100 basis points"

The expense ratios for the evolving portfolios range from 0.30 to 0.79 but they all have this "+ 100 basis points" in their benchmark descriptions. What does that mean? Are they lowering all the benchmarks by a percent? If so, is there a justification for that?

Thanks for any insights you may have regarding benchmarks reporting.
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Re: Fee-adjusted benchmarks in VA 529?

Postby tfb » Mon Dec 31, 2012 12:54 am

Mark13 wrote:The benchmark info reads:

"13.75% S&P 500 / 3.75% Russell 2500/ 3.75% MSCI US Small Cap 1750 / 13.75% MSCI AC EAFE / 7.5% MSCI Emerging Markets / 7.5% FTSE EPRA-NAREIT Developed Real Estate / 5% Barclays Corporate High Yield / 10% JP Morgan Emerging Bond Market Index Global Diversified / 15% Barclays Capital Aggregate / 20% T-Bills + 100 basis points"

I read it as "20% * (T-Bills + 100 basis points)." In other words the benchmark return for this 20% component is 1% when T-bills are currently returning close to 0%. It's the benchmark for the stable value fund.
Harry Sit, taking a break from the forums.
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Re: Fee-adjusted benchmarks in VA 529?

Postby Mark13 » Thu Jan 03, 2013 12:26 pm

Thank you. That makes sense. Although now I do not see how the "adjustment reflecting the inVEST administrative fee for the Portfolio" is incorporated into the benchmark. I suppose the most literal reading would be that they simply lower their benchmarks by the amount of the administrative fee (0.2%), which does seem like a questionable practice. Anyway, I suppose there are more interesting and important things in the world of investing to wonder about.
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