If you participate in this employer-sponsored plan, Sprout Capital Management, LLC may be able to help improve your portfolio return. The below results are for an aggressive investor, but the risk level can be adjusted to suit your particular circumstances. (Please contact us to get a customized review!)
As an employee, making the right mutual fund selections in your employer’s retirement plan can be overwhelming. You often have a limited number of choices, which are pre-selected by your employer. You may be presented with multi-year performance numbers. You may be presented with Morningstar ratings. You may receive advice from a colleague, whose situation is different from your own. What information is important? How do you choose? Do you know how your employer retirement is plan currently invested, or why?
Sprout Capital Management, LLC (SCM) can help. First, SCM helps you determine how much risk is appropriate given your circumstances. Then, SCM helps you position your retirement account in an effort to maximize return for the risk taken, and actively suggests investment changes to maintain this risk profile. SCM believes that disciplined active management can produce much better outcomes for clients than typical, buy-and-hold portfolios.
The mutual fund selections available in the plan “CISCO SYSTEMS,INC. 401(K) PLAN” include:
| Symbol | Description | |
|---|---|---|
| 1 | CASHX | Vanguard Federal Money Market |
| 2 | STLAX | BTC LifePath RET |
| 3 | FUSEX | Fidelity 500 Index PR |
| 4 | FIGRX | Fidelity Intl Discovery |
| 5 | FLPSX | Fidelity Low-Priced Stock |
| 6 | FOCPX | Fidelity OTC Portfolio |
| 7 | FPURX | Fidelity Puritan |
| 8 | HAINX | Harbor International Inst |
| 9 | PTTRX | Pimco Total Return Fund |
| 10 | VXF | BlackRock Extended Equity Mrkt Fund |
| 11 | BMOIX | BlackRock US Debt Index |
| 12 | VTI | BlackRock US Equity Index |
| 13 | CHTRX | Invesco Charter |
| 14 | MSIVX | Invesco Large Cap |
| 15 | SMVAX | Wells Capital Small Cap |
SCM will help you regularly reallocate among these funds to manage risk and help maximize return.
SCM employs a systematic (rules-based) investment strategy, Program R, to perform this reallocation. This strategy takes into account your particular circumstances, the stock market environment, and the nuances of your employer’s plan. During stock bull markets, the strategy reallocates to the plan’s top-performing stock funds. When the economy enters a recession, SCM will try to lower risk by reallocating among the plan’s lower-risk funds, such as bond funds.
One feature of a rules-based strategy is the ability to “backtest”. A backtest demonstrates how a strategy would have (hypothetically) performed in recent years. Your employer’s funds represented by symbols in bold in the table above may not have enough history to perform a backtest. If the plan’s funds do not have 10 years of history, SCM’s backtest uses funds from other providers with similar market exposure and similar bottom-line performance. The funds used by the backtest are shown in the column “Backtest Symbol” in the table below:
| Inception | Backtest Symbol | Backtest Inception | |
|---|---|---|---|
| CASHX | 1970-01-01 | CASHX | 1970-01-01 |
| STLAX | 1994-03-01 | STLAX | 1994-03-01 |
| FUSEX | 1988-02-17 | FUSEX | 1988-02-17 |
| FIGRX | 1986-12-31 | FIGRX | 1986-12-31 |
| FLPSX | 1989-12-27 | FLPSX | 1989-12-27 |
| FOCPX | 1984-12-31 | FOCPX | 1984-12-31 |
| FPURX | 1947-04-16 | FPURX | 1947-04-16 |
| HAINX | 1987-12-29 | HAINX | 1987-12-29 |
| PTTRX | 1987-05-11 | PTTRX | 1987-05-11 |
| VXF | 2001-12-27 | VIMSX | 1998-05-21 |
| BMOIX | 2011-03-31 | SCOAX | 1996-06-14 |
| VTI | 2001-05-24 | SWPPX | 1997-05-19 |
| CHTRX | 1968-11-26 | CHTRX | 1968-11-26 |
| MSIVX | |||
| SMVAX | 2000-11-30 | SMVAX | 2000-11-30 |
The results are hypothetical results and NOT an indicator of future results and do NOT represent returns that any investor actually attained. “Program R”/”SCM Strategy” reflects SCM’s management fee of 1%. Results are net of fund expenses and reflect re-invested dividends or distributions, but do not reflect other fees that may be levied by the employer plan.
Sprout Capital Management, LLC’s strategy, Program R, produced a 12.6% cumulative annualized return since August 1998 in its backtest using the funds in this plan. As a point of comparison, the best performing fund in CISCO SYSTEMS,INC.’s plan is “Fidelity Low-Priced Stock”, proxied by the symbol FLPSX, which produced a 10.8% cumulative annualized return over the same time frame. (It is unlikely that you would have bought and held this fund and only this fund over that time frame, so your return is likely lower than 10.8% for a comparable period!) Sprout Capital Management, LLC may help increase your returns.
A steep loss, also known as a drawdown, can be disruptive if you react to the loss by selling in panic. We believe you are more likely to continue using a strategy if you know how it has performed in a backtest. Since August 1998, Program R experienced a 15.4% maximum drawdown. By comparison, FLPSX, the top-performing fund in the plan, experienced a 54.8% maximum drawdown. Sprout Capital Management, LLC may help lower your risk.
The following table lists the cumulative annualized return (AR) and maximum peak-to-valley drawdown (DD) for Program R, versus non-target-date funds in the plan, starting from August 1998:
| AR – Annualized % Return | DD – Maximum % Drawdown | AR/DD Ratio | Description | |
|---|---|---|---|---|
| Program R | 12.6 | 15.4 | 0.82 | |
| FLPSX | 10.8 | 54.8 | 0.20 | Fidelity Low-Priced Stock |
| SMVAX | 9.5 | 57.2 | 0.17 | Wells Capital Small Cap |
| FOCPX | 9.5 | 58.8 | 0.16 | Fidelity OTC Portfolio |
| VIMSX | 8.9 | 59.0 | 0.15 | BlackRock Extended Equity Mrkt Fund |
| FPURX | 6.8 | 40.8 | 0.17 | Fidelity Puritan |
| SWPPX | 6.7 | 55.1 | 0.12 | BlackRock US Equity Index |
| FUSEX | 6.4 | 55.3 | 0.12 | Fidelity 500 Index PR |
| HAINX | 5.6 | 60.2 | 0.09 | Harbor International Inst |
| FIGRX | 5.4 | 60.5 | 0.09 | Fidelity Intl Discovery |
| PTTRX | 5.1 | 6.7 | 0.77 | Pimco Total Return Fund |
| CHTRX | 4.8 | 45.5 | 0.11 | Invesco Charter |
| STLAX | 4.8 | 25.7 | 0.19 | BTC LifePath RET |
| SCOAX | 0.8 | 18.8 | 0.04 | BlackRock US Debt Index |
The results are hypothetical results and NOT an indicator of future results and do NOT represent returns that any investor actually attained. “Program R”/”SCM Strategy” reflects SCM’s management fee of 1%. Results are net of fund expenses and reflect re-invested dividends or distributions, but do not reflect other fees that may be levied by the employer plan.
A self-directed brokerage option (SDBA), if your employer plan has one, is a flexible alternative to employer-selected mutual funds. An SDBA is held in trust for your employer plan at a broker custodian, such as Fidelity, Charles Schwab or TD Ameritrade. An SDBA allows you to invest in a wide array of securities, such as individual stocks and exchange-traded funds (ETFs). Sprout Capital Management, LLC can manage SDBAs through a limited power-of-attorney that you provide to the broker custodian.
Using an SDBA may help increase returns further. SCM invests SDBAs, IRAs, and other brokerage accounts in a separate strategy, Program A. Program A is a systematic strategy that invests in individual stocks. Program A may be used as a complement to Program R.
Our records show that your employer’s plan has an SDBA option. Our information is not complete for all plans, so it is worth double-checking your plan materials. If your employer plan does in fact have an SDBA option or you have an IRA or taxable account, please click here to learn more about Program A!
Of course, you may not be an aggressive investor. Not everyone has the same risk tolerance, goals, financial capacity or perception of the market. Sprout Capital Management, LLC can tailor its strategies for your situation.
If you need help deciding how to manage your employer retirement plan or your IRAs and taxable accounts, please contact us to start a discussion!
Investment advisory services offered through Sprout Capital Management, LLC, a registered investment adviser. Mutual fund and other security price data sourced from Tiingo.com. Mutual fund selections for the retirement plan sourced from CISCO SYSTEMS,INC.’s US Department of Labor filing. Mutual fund selection data not guaranteed to be accurate or current. Return and drawdown statistics are calculated on a time-weighted basis. Return and drawdown include the impact of fund expenses, but do not reflect the impact of all employer retirement plan restrictions and fees. Investments entail significant risks and are suitable only for certain investors as part of an overall diversified investment strategy and only for investors able to withstand a total loss of investment. Past performance is not an indication of future results. In addition, there can be no assurance that current investments will be realized as projected. Actual realized returns will depend on, among other factors, future operating results, the value of assets and market conditions at the time of disposition, any related transaction costs, taxes, and fees, and the timing and manner of sale, all of which may differ from the assumptions on which the information contained herein is based. It should not be assumed that any investments described herein were or will be profitable. Backtested performance should not be interpreted as an indication of actual performance. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investment adviser’s decision-making process if the adviser were actually managing client money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.