Thrift Savings Plan to Change I Fund Index

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Barry Barnitz
Wiki Admin
Posts: 2987
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Thrift Savings Plan to Change I Fund Index

Post by Barry Barnitz » Thu Dec 07, 2017 5:52 am

Hi:

News release: TSP to Change I Fund Index, Leave Others as Is, December 6, 2017, Fedweek
The TSP’s governing board has decided to replace the current index used in its international stock I fund, [moving from] the MSCI Europe, Australasia, Far East benchmark of large company stocks in about two dozen countries [to the} MSCI All Country World Index, which covers non-U.S. developed markets, smaller companies and emerging markets. Among other things, that means that the index will reflect stocks of Canada, the fourth-largest stock market in the world.

The transition to the new index likely will take a year or more, however.
regards,
Image | blb | December Birthday Celebration: Ludwig van Beethoven

BrianMc
Posts: 131
Joined: Sat Feb 07, 2009 9:03 am

Re: Thrift Savings Plan to Change I Fund Index

Post by BrianMc » Thu Dec 07, 2017 9:01 am

Terrific news for those of us who tried to replicate the MSCI All Country World via the I Fund and other mutual funds and/or ETFs. Good move by the Board!

stan1
Posts: 5282
Joined: Mon Oct 08, 2007 4:35 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by stan1 » Thu Dec 07, 2017 9:17 am

Good news for diversified investors, hopefully it will take Congress and lobbyists a long time to figure out TSP will be investing in companies based in China, Russia, UAE, Qatar, Egypt, Turkey, and Pakistan plus whatever counties over time that get added to the index. TSP will be investing federal employee and military member retirement funds in companies domiciled in a country the US has economic sanctions against (that's a fact not a political statement). FRTIB has done a great job for over 30 years keeping TSP away from politics and lobbyists but I'm afraid this change will make it harder going forward.

Engineer250
Posts: 930
Joined: Wed Jun 22, 2016 1:41 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by Engineer250 » Thu Dec 07, 2017 12:03 pm

Thanks I would have missed this news otherwise and it is good news. My IRA and Roth and 401k are more complicated than I would like since I have to hold emerging and international small to balance out my I Fund. Looking forward to when they make the transition and I can go back to holding Total US and Total International everywhere else. Also makes my plan to get my tIRA into the TSP (rather than 401k) seem like a good decision long term.
Where the tides of fortune take us, no man can know.

MnD
Posts: 3168
Joined: Mon Jan 14, 2008 12:41 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by MnD » Sat Dec 09, 2017 10:36 am

stan1 wrote:
Thu Dec 07, 2017 9:17 am
TSP will be investing federal employee and military member retirement funds in companies domiciled in a country the US has economic sanctions against (that's a fact not a political statement). FRTIB has done a great job for over 30 years keeping TSP away from politics and lobbyists but I'm afraid this change will make it harder going forward.
Adding the I fund originally faced opposition from some members of congress who stated it was unpatriotic/wrong but that argument got no-where. Improving the plan by using broader indices requires no such approval and is completely in line with current best investment practices.

There is no simple list of "countries sanctioned" but rather specific programs to further various policy goals.
https://www.treasury.gov/resource-cente ... grams.aspx

Compliance with sanctions is one of many factors in index construction and maintenance and Blackrock MSCI ACWI ex USA IMI has that covered.
Specifically see page 103 of the index methodology report
https://www.msci.com/eqb/methodology/me ... dology.pdf
Countries subject to economic sanctions: MSCI does not cover certain countries for which
significant economic sanctions are applied. Examples of such countries as of May 2017 are
Cuba, Democratic Republic of the Congo, Libya, North Korea, Iran, Iraq, Somalia, Sudan and
Syria. Companies that are classified to and/or incorporated in such countries are not eligible for
inclusion in the MSCI Global Investable Market Indexes. MSCI regularly assesses eligibility of
new markets and communicates their potential inclusion in the MSCI GIMI in advance of
implementation.

stan1
Posts: 5282
Joined: Mon Oct 08, 2007 4:35 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by stan1 » Sat Dec 09, 2017 10:44 am

MnD wrote:
Sat Dec 09, 2017 10:36 am
stan1 wrote:
Thu Dec 07, 2017 9:17 am
TSP will be investing federal employee and military member retirement funds in companies domiciled in a country the US has economic sanctions against (that's a fact not a political statement). FRTIB has done a great job for over 30 years keeping TSP away from politics and lobbyists but I'm afraid this change will make it harder going forward.
Adding the I fund originally faced opposition from some members of congress who stated it was unpatriotic/wrong but that argument got no-where. Improving the plan by using broader indices requires no such approval and is completely in line with current best investment practices.

There is no simple list of "countries sanctioned" but rather specific programs to further various policy goals.
https://www.treasury.gov/resource-cente ... grams.aspx

Compliance with sanctions is one of many factors in index construction and maintenance and Blackrock MSCI ACWI ex USA IMI has that covered.
Specifically see page 103 of the index methodology report
https://www.msci.com/eqb/methodology/me ... dology.pdf
Countries subject to economic sanctions: MSCI does not cover certain countries for which
significant economic sanctions are applied. Examples of such countries as of May 2017 are
Cuba, Democratic Republic of the Congo, Libya, North Korea, Iran, Iraq, Somalia, Sudan and
Syria. Companies that are classified to and/or incorporated in such countries are not eligible for
inclusion in the MSCI Global Investable Market Indexes. MSCI regularly assesses eligibility of
new markets and communicates their potential inclusion in the MSCI GIMI in advance of
implementation.
You are using logic but there's a lot of emotion in politics. We'll have to see how it goes.

Iorek
Posts: 898
Joined: Fri Mar 08, 2013 9:38 am

Re: Thrift Savings Plan to Change I Fund Index

Post by Iorek » Sat Dec 09, 2017 10:50 am

That is good news. For a while I tried to complete my TSP investment with an emerging markets fund but quickly decided that was not for me ;)

mouth
Posts: 90
Joined: Sun Apr 19, 2015 6:40 am

Re: Thrift Savings Plan to Change I Fund Index

Post by mouth » Sun Dec 10, 2017 12:56 pm

So I know they say in the announcement they exclude US ... but the info for the ACWI at MSCI's web page indicates it includes the US ... as the name implies, ALL WORLD COUNTRIES

https://www.msci.com/acwi

What am I missing?

UPDATE: Clearly I'm missing the AWCX vs AWCI indexes. Never mind.

stan1
Posts: 5282
Joined: Mon Oct 08, 2007 4:35 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by stan1 » Wed Jan 24, 2018 9:35 pm

Adding to this. The FRTIB posted their November meeting minutes this week so I'll take that as an official statement.

https://www.frtib.gov/MeetingMinutes/2017/2017Nov.pdf
AON recommended the Agency replace the current I Fund benchmark,
the MSCI EAFE Index, with the MSCI All Country World ex-U.S. lnvestable Market
Index. Mr. lnvlnjack noted that the MSCI indices remained the most popular indices for
U.S. based institutional investors investing in overseas equity markets. He also noted
that MSCI All Country World ex-U.S. lnvestable Market Index would provide liquidity
and long term benefits to TSP participants. The new index would include Canada, the
fourth largest non-U.S. market, emerging markets, and the small-cap equities in those
markets. The expansion of the I Fund would improve long term returns relative to risk.
Mr. Ryan explained that long-term returns for non-U.S. equity markets appeared more
favorable compared to the U.S. equity market.

Member Jones noted that the primary concern with the MSCI All Country
World ex-U.S. lnvestable Market Index in the past was the lack of maturation of some of
the emerging markets. Mr. Ryan responded that industry had evolved and liquidity
would not be an issue.

Mr. McCaffrey concluded by indicating that the Office of Investments
was recommending replacing the MSCI EAFE Index with the MSCI All Country World ex
U.S. lnvestable Market Index. The target date for the change would be some time in
2019.

The Board members made, seconded, and adopted the following motion without
objection:
MOTION: That the indices for the C, S, and F Funds be unchanged from
the S&P 500 Index, the Dow Jones U.S. Completion Total Stock Market
Index, and the Bloomberg Barclays U.S. Aggregate Index respectively,
and that the I Fund index change from the MSCI EAFA Index to the MSCI
All Country World ex-U.S. lnvestable Marker Index and be executed by
the single investment manager chosen with the next re-compete of the
investment manager.

finite_difference
Posts: 789
Joined: Thu Jul 09, 2015 7:00 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by finite_difference » Wed Jan 24, 2018 10:04 pm

The switch to MSCI AWCI ex-US IMI looks great.

Here’s a nice thread detailing the differences between intl indices including VTIAX: viewtopic.php?t=202729

To quote “selters” from that thread:viewtopic.php?t=202729#p3107755
Post Sun Nov 06, 2016 3:05 pm

MSCI ACWI ex US index comprises the top 85% of global market cap outside the US.

MSCI ACWI IMI comprises the top 99% of global market market cap outside the US.

Vanguard Total International Stock Market Index Fund has large, mid and small caps (but not micro caps).
I think MSCI AWCI ex-US IMI should be very close to the VTIAX index (FTSE Global All Cap ex U.S. Index).
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

Engineer250
Posts: 930
Joined: Wed Jun 22, 2016 1:41 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by Engineer250 » Wed Jan 24, 2018 10:23 pm

stan1 wrote:
Wed Jan 24, 2018 9:35 pm
Adding to this. The FRTIB posted their November meeting minutes this week so I'll take that as an official statement.

https://www.frtib.gov/MeetingMinutes/2017/2017Nov.pdf
The target date for the change would be some time in
2019.
Thanks for posting!

But doesn't the FRTIB know I'm too excited/impatient to wait until 2019? Okay I'm kidding. But I'm looking forward to not having to balance out all my other accounts with emerging and international small cap. It's going to be nice to be 2 and 3 funds everywhere.
Where the tides of fortune take us, no man can know.

stan1
Posts: 5282
Joined: Mon Oct 08, 2007 4:35 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by stan1 » Wed Jan 24, 2018 10:38 pm

The minutes state that the index change will occur following the recompete for the TSP's separate account investment manager contract so I'd guess that's part of the reason for the 2019 date. When Vanguard has switched indexes they've done it over a period up to 1 year. Blackrock is the incumbent. My recollection is that no one other than Blackrock and their predecessors through acquisitions, Wells Fargo and Barclays, has ever held a TSP investment manager contract and they often (always?) get a single bid when they recompete.

MnD
Posts: 3168
Joined: Mon Jan 14, 2008 12:41 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by MnD » Tue Feb 06, 2018 2:42 pm

stan1 wrote:
Wed Jan 24, 2018 10:38 pm
The minutes state that the index change will occur following the recompete for the TSP's separate account investment manager contract so I'd guess that's part of the reason for the 2019 date. When Vanguard has switched indexes they've done it over a period up to 1 year. Blackrock is the incumbent. My recollection is that no one other than Blackrock and their predecessors through acquisitions, Wells Fargo and Barclays, has ever held a TSP investment manager contract and they often (always?) get a single bid when they recompete.
With EAFE covering only 61% of international, this is going to mean a lot of changes to our accounts. As a global market cap equity investor, ~20% of our entire equity positions are in small cap international and emerging markets funds in various other accounts. It will be nice to dump those positions and have things both simplified and more balanced. I have one account that is like 75% Emerging markets and 25% Small cap international. My Schwab guy must think I'm nuts. Hopefully the TSP provides a more detailed schedule for the transition than "2019 sometime" so the total international replicators can unwind their EM and SC-Int positions in a timely manner.

User avatar
fortyofforty
Posts: 753
Joined: Wed Mar 31, 2010 12:33 pm

Re: Thrift Savings Plan to Change I Fund Index

Post by fortyofforty » Thu Feb 08, 2018 7:39 pm

I am looking forward to this change. I want to simplify my investing life by obtaining just about every investable stock in one place. Now, if the TSP would offer a total domestic portfolio, instead of just the S and C, I'd be even happier.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell

User avatar
baw703916
Posts: 6657
Joined: Sun Apr 01, 2007 1:10 pm
Location: Seattle

Re: Thrift Savings Plan to Change I Fund Index

Post by baw703916 » Thu Feb 08, 2018 8:17 pm

I'd somehow missed this when it was first posted.

Great news! Good job, FRTIB. :happy
Most of my posts assume no behavioral errors.

Post Reply