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Generally, three to five years of performance history is needed before results alone can play a substantial role in
judging an investment option. In the short run, other factors can and will be given significantly more weight than
investment results. These factors include, but are not limited to:
•
Consistency of investment style
•
Organizational and personnel stability
•
Fundamental risk
•
Concentration risk
The
Committee
recognizes the long-term nature of retirement plan investments. Loss of principal is only one risk for a
long-term investor. Opportunity costs and inflation also warrant considerations. The
Committee
will review the
retirement plan vendor platform periodically to ensure that broadly diversified investment options are available to
participants.
Finally, the
Committee
does not have a symmetrical risk tolerance, meaning decisions which result in large gains are
not as good as decisions that prevent large losses.
IV.
INVESTMENT OPTIONS
The investment options which have been selected for the plan are well-diversified; professionally managed; charge fees
that are reasonable for the asset class and/or investment approach taken; and provide, in the aggregate, the participant
with the opportunity to structure a portfolio with risk and return characteristics suitable to long-term investment
programs. The current investment options of the
ABC Company Plan
are named in the periodic Investment Review
which is prepared by the
Registered Investment Advisor (RIA)
.
The
Committee
will apply the following due diligence criteria in selecting each mutual fund investment option:
Regulatory oversight: Each investment manager should be a regulated bank, an insurance company,
a mutual fund organization, or a registered investment advisor.
Correlation to style or peer group: The investment option should be highly correlated to the asset
class of the investment option. For example, a small cap equity investment option’s performance
should be highly correlated with small cap equities in general over time.
Performance relative to a peer group: The investment option’s performance should be evaluated
against the peer group.
Performance relative to assumed risk: The investment option’s risk-adjusted performance should be
evaluated against the peer group.
Minimum track record: The inception date should be greater than three years unless relevant
circumstances support a shorter time frame.
Holdings consistent with style: The investment option’s individual stock and/or bond holdings
should be consistent with its stated style.
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