International stocks gain in popularity among TSP investors
Trading costs for the fund rise as employees buy into an “up-market.”
Thrift Savings Plan participants are moving their money into international stocks as that option outperforms others, TSP statistics show.
The TSP, federal employees' version of a 401(k) retirement savings plan, offers five basic funds. For the 12 months through January 2006, the international (I) fund performed best, earning a 22.91 percent return.
Participants took notice. In that same time period, employees in the older Civil Service Retirement System went from having 4 percent of all TSP investments in the I Fund to placing 6 percent there.
Over the same time period, employees in the newer Federal Employees Retirement System moved from allocating 5 percent of investments to the I Fund to 8 percent.
The I Fund percentages increased even as a new sixth option, the lifecycle (L) funds, drew out 5 percent of investments for both CSRS and FERS employees. The L funds blend the stand-alone funds based on expected retirement dates, with the mix automatically becoming more conservative as participants near that date.
The movement is plainly illustrated by interfund transfers, which are shifts of money already in the TSP between funds. In January, participants added $753 million to the I Fund through interfund transfers. The I Fund was the only stand-alone fund to increase. By contrast, participants removed $1.2 billion from the C Fund, which invests in the stocks of the 500 largest domestic companies and had a 12-month growth of 10.4 percent.
Interfund transfers are representative of TSP participants who actively manage their investments. But TSP officials said participants who jump on market trends may not fare better in the end than employees who ride out the market.
"I'm sorry to see the herd following the I Fund," TSP Board member Alejandro Sanchez said at a monthly board meeting Tuesday.
Gary Amelio, executive director of the TSP, said "it's a sliding scale" for investors who aggressively manage their accounts, on how they perform compared with the L funds, which at times will do better than the market and at times will do worse.
TSP Chief Investment Officer Tracey Ray noted a $1.3 million trading cost for the I Fund in the month of January. That number was significantly higher than the next highest fund in trading costs, which was the S Fund at about $200,000.
Ray said the costs came because participants moving into the I Fund are "buying into an up-market, which is going to make it more expensive."