TSP peek-a-boo

The C Fund used to be hot. Now it's not. And some Thrift Savings Plan investors are turning their backs on the stock fund that made them thousands of dollars throughout the 1990s. In 11 of its first 12 years of existence, the C Fund made money for TSP participants. In some years, the stock fund increased its value by more than 20 percent, an amazing rate that brought more and more investors into the C Fund every year. But investors have lost some of their love for the C Fund as it has lost money. In 2000, the fund lost 9.1 percent of its value and is down 14.3 percent for the 12 months ending July 31. Although 55 percent of the assets of TSP participants --about $54.5 billion--is still invested in the C Fund, those investors have shifted $3.2 billion out of the fund so far this year. Investors moved much of that money into the G Fund and F Fund during the first four months of the year. In June, much of the $340.5 million taken out of the C Fund went into the new S Fund and I Fund, which debuted in May. While investors spurn the C Fund, they're giving the G and F Funds a little more attention. Investors this year transferred $1.4 billion from other funds into the F Fund, which invests in bonds. But investors pulled $174.4 million out of the F Fund in May when the new S and I Funds debuted. About 6 percent of TSP investors' money is in the F Fund. In January, 28 percent of Federal Employees Retirement System contributors' money and 26 percent of Civil Service Retirement System contributors' money was in the G Fund, which invests in government securities. As of June, 31 percent of FERS and 30 percent of CSRS money was in the G Fund. Financial advisors warn against frequent transfers among funds, reminding investors that TSP investments are typically long-haul investments. If an investor takes money out of the C Fund in a month that it is losing money, the investor will miss out on a potential rebound the following month. For the most part, TSP investors follow this advice, but the shakiness of the stock market is taking its toll on investors' confidence in the C Fund. The New Funds Financial advisors encourage people to diversify their portfolios. TSP investors can diversify more broadly now that they have five funds to choose from. If the S and I Funds were performing better, maybe more people would have started investing in them by now. But the I Fund, which invests in international stocks, has lost money in each of its first three months. The S Fund had minor increases in May and June, but lost 4 percent in July. As of June 30, investors have put $522 million in the S Fund and $207 million in the I Fund. That's less than 1 percent of all the money invested in the TSP. Rating the TSP One way to rate how well the TSP is managed is to look at how closely its funds match the performance of the indexes they're supposed to mirror. TSP funds are invested passively. For example, C Fund managers try to match the returns of the S&P 500, an index that tracks the stock performance of the country's largest corporations. The managers don't try to outperform the index the way some private-sector mutual fund managers do. In a July 27 memorandum to members of the Federal Retirement Thrift Investment Board, TSP Executive Director Roger Mehle reported how closely the funds mirrored the indexes they are supposed to track. Barclays, the investment firm that manages the funds, slightly outperformed the indexes for the C, F and I funds, but fell a bit short on the S Fund, Mehle reported. (Because the G Fund is invested in government securities, it doesn't track an index.) In the second quarter of 2001, the C Fund outperformed the S&P 500 index by 2 basis points. A basis point is one one-hundredth of a percent. The C Fund returned 5.87 percent compared with 5.85 percent for the S&P 500. The F Fund outperformed the Lehman Brothers U.S. Aggregate Bond Index by 4 basis points, 0.60 percent to 0.56 percent. The I Fund outperformed the MSCI Europe, Australasia and Far East index by 20 basis points, losing only 0.85 percent of its value compared to 1.05 percent for the MSCI index. For those three funds then, Barclays, on behalf of the TSP, successfully matched the performance of the indexes. But the S Fund underperformed the Wilshire 4500 by 45 basis points, gaining 13.66 percent for the second quarter compared to 14.11 percent for the Wilshire index. TSP Director Mehle said Barclays was excluding the smallest companies included in the index from the S Fund. "Barclays will discontinue this practice over the next several months by including the smallest capitalization companies in their sample of stocks," Mehle said.