Ford Motor Company made a surprise announcement that they would be removing the Fidelity Contrafund from their multi-billion dollar employee 401(k) plan effective after the market close on September 2, 2015. I say a surprise announcement because Contrafund had been part of Ford’s plan for many years, and given its historically sound performance relative to its peers and benchmarks, it was a bit of a surprise to investment firms like ours that manage retirement assets for several Ford clients.
It is always challenging to know the ultimate reason why companies drop specific mutual funds from their platforms, but based upon what I read, Ford’s reason was because it did not believe Contrafund’s management team could sustain its outperformance relative to its benchmark in the future. As we always say, past performance is not a good indicator of future performance. This fund has been managed very consistently through the years and with little manager turnover compared to other funds in its category. Ford might have determined that based upon the Contrafund’s size (what it is currently managing), and compared to other existing funds, this fund was ripe to be removed.
This was apparently a judgement call on the part of Ford’s retirement benefits area as to whether Contrafund could continue to produce solid results compared to other investments in its category (U.S. large company growth). It’s interesting they did not replace it with a new U.S. large company growth fund, but they opted to retain Fidelity Growth Company, which is an actively managed U.S. large company growth fund. Fidelity Growth Company has had better performance than Contrafund over the past ten years. My sense is thatFord believed that Fidelity Growth Company can continue to deliver superior performance in the future compared to Contrafund, which is why they decided to remove Contrafund.
What You Should Do
Instead of replacing Contrafund with another new U.S. large company growth fund, Ford is transferring all balances and future contributions to the Vanguard U.S. Equity Index Fund. This is a good opportunity for Ford employees to review not only their Ford 401(k) plan, but their entire investment portfolio. I believe Contrafund and Vanguard U.S. Equity Index funds are different types of funds, so if your asset allocation plan was having exposure to U.S. large company growth stocks, then you might want to rethink the automatic transfer to Vanguard U.S. Equity Index Fund.
This is also a good opportunity to discuss the move with your financial advisor if you currently work with one. They can help you make the most appropriate decision for your situation and investment goals.
I think more companies should take a proactive role in reviewing their 401(k) investment platforms to make sure they have suitable mutual funds for their employees. Retirement plans like 401(k)’s are often times the largest investment account for investors and having suitable and high quality investments on their platforms helps employees.
Firms that manage very large 401(k)’s like Ford have an important role to play in that they have a fiduciary responsibility to monitor and review their platforms on a regular basis. As a firm that manages over a billion dollars for a variety of clients, including 401(k) assets for Ford employees, I have run across many plans that need a fund/platform makeover. Employees should take it upon themselves to contact their retirement benefits area directly to ask questions about possible changes. There are times when I’ve literally scratched my head in disbelief about certain fund decisions and why they were made.
We already have a retirement issue in this country where people are not saving enough for their post-employment lives, and investors do not need any additional roadblocks like weak investment choices to prevent them from succeeding. Therefore, if you feel your 401(k) plan is not as strong as it should be, contact your benefits area and let them know it.
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