When hiring active managers, some advisors look for the star rating on Morningstar rather than using the criteria TRG recommends. We believe that advisors and investors should focus on active managers who skillfully allocate capital to their best investment ideas. Passive investment options are widely available to investors who want market returns with low fees. Active managers must add value and act in clients’ best interests by allocating capital to attractive investments to increase risk-adjusted returns and justify fees. We propose an alternative method to the Morningstar rating system that we believe provides structure that protects downside while maintaining significant performance upside.
“Wide diversification is only required when investors do not understand what they are doing. Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
– Warren Buffett, Berkshire Hathaway
We want Value managers that fit the following criteria. They are:
- At least 10 yr performance history
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Low expense ratios.
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A single manager or a clear lead manager because it demonstrates ownership of fund and avoids group think
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Manager does not over diversify and is a best idea or focus fund
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Ability to go to cash/high cash positions- Shows that a manager can wait for better ideas if none are available and is actively searching for the best opportunities
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Consistently low P/E ratio on holdings (ex. S&P 500 P/E = 25)
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Managers who eat their own cooking- meaning that they have their own money in their fund
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Low turnover rate - demonstrates convictions in holdings
We will briefly cover each of the 8 criteria below:
1. Long term survivability: A minimum of 10 years of performance history gives us a long term look into how the manager performs through varying market cycles. We prefer to see at least one market crash and rebound to see how the manager reacts and makes their investment decisions.
2. Low cost of management: We expect low cost management of the fund just like we would expect low cost management for a company. The more value that can be driven from the fund the more profitable the fund is for its managers and its shareholders. High expense ratios can be one of the biggest drags on returns (see table below), but quality managers with low turnover and high conviction may be able to achieve over-performance at a lower cost.
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3. Single Vision and Responsibility: Single managers, or a team with a clear lead manager, are less likely to be convinced and/or moved from their originating ideals. When a lead manager makes a decision he/she alone is responsible for that decision. When a committee of managers make a decision, it is difficult to place blame or praise (identify ownership) for an investment decision. Lead managers by definition have more riding on their decisions and thus spend more time during the due diligence portion of their investment hypotheses.
4. Does not Over-diversify: Volatility-aversion of investors and lack of in-depth research influence fund managers into creating over-diversified portfolios, diluting the alphas of their best ideas. This leads to the widespread underperformance of mutual funds compared to their benchmark indices after deducting the expenses and fees. Our definition of risk, defined as “permanent capital impairment”, forces us to disregard short-term volatility and focus on making the best investment decisions based on fundamental research.
“There is no sense diluting your best ideas or favorite situations by continuing to work your way down a list of attractive opportunities.”
-Joel Greenblatt, Gotham Capital
5. Holds cash when deals are unavailable: Good managers stay true to their ideals and hold fast when markets do not provide good investment opportunities. In elevated markets we see good value manager’s portfolios having increasing cash positions. When managers cannot find good companies to re-invest their capital into, they will hold cash because they are unwilling to deviate (drift) from their investment objective. For example, some fund families will not allow their managers to go to cash mandating that they stay fully invested at all times. This may force managers to buy into companies that they don’t feel as strongly about and may force them into buying a larger basket of investments. This dilutes the best ideas while their investors are often left paying a higher expense ratio due to additional trade and turnover costs.
6. Focus on finding “On Sale” companies: Value mangers are always trying purchase companies at a price that is lower than what their intrinsic value is. One way of identifying these companies is through the Price to Earnings Multiple. A low market price in relation to a company’s earnings signifies a cheaper price than if the market realized the company’s intrinsic value. In a white paper by Tweedy, Browne Co, they identified that (as a group) stocks with low valuations (P/E, P/B, and P/CF) and high dividend yield consistently outperform their counterparts over the long term.
7. Eat their own cooking: We place high importance on whether or not a manager has any of his/her own money invested along-side their shareholders. If the manager’s compensation is only tied to the size of the fund, there is little incentive to beat the benchmark and keep costs down. In fact, a study by Morningstar found that 85% of balanced-fund managers who succeed when having $1 million in their fund, versus 32% if no stake [4]. We find it hard to invest with a manager who does not believe in their own product.
8. High Level of Conviction: Low turnover signifies a high level of conviction in the positions within the fund. When a manager has low turnover he/she is not transitioning in and out of specific positions because he/she is confident in their research and investment hypothesis.
“It talked about a couple of studies, including the best-performing fund from 2000 to 2010, which was up 18% a year even when the market was flat. The average investor in that fund went in and out at the wrong times on a dollar-weighted basis to lose 11% per year. Meanwhile, the statistics for the top-quartile managers for that decade were stunning: 97% of them spent at least three of those 10 years in the bottom half of performance, 79% spent at least three years I the bottom quartile, and 47% spent at least three years in the bottom decile.”
-Joel Greenblatt, in reference to his book The Big Secret for the Small Investor during an interview with Barron’s.com
Our proposed alternative to the star rating system is simple, easy to use, and is based on methods that have been proven to work.
How can employees of General Mills, Inc. maximize their benefits under the BCTGM Retirement Plan, and what factors are considered in determining pension amounts for those nearing retirement? This question aims to explore the intricate details of how General Mills, Inc. structures its pension benefits to support employees’ future financial stability. It's important for employees to understand the value of their years of service and how this affects their ultimate pension payout as they approach retirement.
Maximizing Benefits under the BCTGM Retirement Plan: Employees of General Mills can maximize their benefits under the BCTGM Retirement Plan by understanding how their years of service and negotiated benefit levels directly affect the pension they receive. The pension amount is determined by the length of service and a defined benefit formula based on the number of years of Benefit Service accrued. As employees approach retirement, they should consider whether they meet eligibility criteria for early or normal retirement, as these factors influence the ultimate pension payout(General_Mills_2024_Pens…).
What are the eligibility requirements for participating in the BCTGM Retirement Plan at General Mills, Inc., and how does this participation impact future retirement benefits? Employees should be well-informed about what constitutes eligibility to participate in the retirement plan. Understanding criteria such as service length, employment status, and union participation is crucial, as it directly relates to their ability to accrue retirement benefits.
Eligibility Requirements for BCTGM Retirement Plan: To participate in the BCTGM Retirement Plan, employees must be regular employees of General Mills covered by a collective bargaining agreement. Eligibility is automatic after completing a probationary period. Participation impacts future retirement benefits as employees begin to accrue pension benefits based on years of service, which contributes to their final payout during retirement(General_Mills_2024_Pens…).
In what ways does General Mills, Inc. ensure that benefits from the BCTGM Retirement Plan remain protected under federal law, and what role does the Pension Benefit Guaranty Corporation (PBGC) play in this? Knowledge of the protections available can significantly influence employees' assurance in the viability of their pension benefits. It is vital for employees to recognize how federal guarantees work in safeguarding their retirement benefits.
Federal Law Protections and PBGC's Role: The BCTGM Retirement Plan is protected under federal law, ensuring that employees’ retirement benefits are safeguarded. The Pension Benefit Guaranty Corporation (PBGC) insures vested benefits, including disability and survivor pensions, up to certain limits. This protection provides employees with assurance that their pensions are protected, even in the event of plan termination(General_Mills_2024_Pens…).
How does General Mills, Inc. address the complexities of vesting in the BCTGM Retirement Plan, and what can employees do if they are concerned about their vested rights? Vesting is a key concept that affects employees' access to benefits over their careers. Employees need to understand the vesting schedule outlined by General Mills, Inc. and the implications it has on their retirement plans.
Vesting in the BCTGM Retirement Plan: Employees vest in the BCTGM Retirement Plan after completing five years of Eligibility Service or upon reaching age 65. Once vested, employees have a non-forfeitable right to their pension benefits, which means they retain their pension rights even if they leave the company before reaching retirement age(General_Mills_2024_Pens…).
What options are available to employees of General Mills, Inc. if they experience a change in their employment status after being vested in the BCTGM Retirement Plan, and how might this impact their future retirement pensions? This question prompts discussion on the plan's provisions regarding reemployment and what employees should be aware of when considering changes to their employment status.
Impact of Employment Status Changes on Pension: If an employee's status changes after being vested in the BCTGM Retirement Plan, such as leaving the company, they may still be entitled to pension benefits. The plan outlines provisions for reemployment and how prior service years are counted toward future pension calculations. Employees who are reemployed may have their previously earned service restored(General_Mills_2024_Pens…).
How does the BCTGM Retirement Plan at General Mills, Inc. work in conjunction with Social Security benefits, and what should employees be aware of regarding offsets or deductions? This can encompass the interplay between corporate pension plans and governmental benefits, which is critical for employees to plan their retirement effectively.
Coordination with Social Security Benefits: The BCTGM Retirement Plan operates in addition to Social Security benefits. There are no direct offsets between the pension and Social Security benefits, meaning employees receive both independently. However, employees should be aware of how the timing of drawing Social Security and pension benefits may affect their overall financial situation(General_Mills_2024_Pens…).
What steps must employees of General Mills, Inc. take to initiate a claim for benefits under the BCTGM Retirement Plan, and how does the claims process ensure fairness and transparency? A clear comprehension of the claims process is essential for employees to secure their pension benefits. This question encourages exploration of the procedures in place to assist employees in understanding their rights and options.
Claiming Benefits under the BCTGM Retirement Plan: Employees must terminate employment before claiming their BCTGM Retirement Plan benefits. The claims process involves submitting the required forms, and employees must ensure they provide all necessary documentation for a smooth process. The pension is generally paid monthly, with lump-sum options available under specific circumstances(General_Mills_2024_Pens…).
How does the retirement benefit formula of the BCTGM Retirement Plan operate, and what specific factors should an employee of General Mills, Inc. consider while planning for retirement? Delving into the calculations involved in determining retirement benefits is important for employees to understand how their service years and other contributions come together to form their final retirement payout.
Retirement Benefit Formula: The retirement benefit formula is calculated based on the years of Benefit Service and a defined benefit level. As of 2024, for each year of Benefit Service, employees receive $87 per month (increasing to $88 after June 1, 2025). Planning for retirement involves considering how long they will work and the benefit level in place at the time of retirement(General_Mills_2024_Pens…).
What additional resources or support does General Mills, Inc. provide to assist employees in planning their retirement and ensuring they make the most of their benefits offered under the BCTGM Retirement Plan? Understanding the tools and resources available can empower employees to take proactive steps in managing their retirement plans effectively.
Resources for Retirement Planning: General Mills offers resources like the Benefits Service Center and online portals (e.g., www.mygenmillsbenefits.com) to assist employees with retirement planning. These tools help employees understand their benefits, calculate potential payouts, and explore options for maximizing their retirement income(General_Mills_2024_Pens…).
How can employees contact General Mills, Inc. for further information about the BCTGM Retirement Plan or specific queries related to their retirement benefits? This question is crucial so employees know the appropriate channels for communication and can seek clarification on any concerns they may have regarding their retirement planning.
Contact Information for Plan Inquiries: Employees can contact General Mills for more information about the BCTGM Retirement Plan through the Benefits Service Center at 1-877-430-4015 or visit www.mygenmillsbenefits.com. This contact provides direct access to support and answers to questions about their retirement benefits(General_Mills_2024_Pens…).