New Ford SSIP & TESPHE PLANS

Effective April 1, 2002 Ford will close 42 funds in its 401(k) plan to new contributions. Also effective April 1, nineteen new funds will be added to the plan.

On this page of the website we provide preliminary analysis and ratings (3-15-02) of the current, new, and cancelled options in the plan.

You can read up on the new fund offerings in the following ten pages. Or, to make life easier, if you are not already one of our clients, sign on as an MCM client and leave all the work to us. Simply click here to request a free information package concerning Mainstay Capital Management and our portfolio management services for your 401(k) and other investment accounts. You can also call us toll-free at 1-866-444-6246 for any questions concerning our services or information provided on this website.

Fund tables are provided below rating the funds in each category. Yellow shading indicates funds that are new to the plan. White background indicates existing funds that will be open to new contributions after April 1. Grey shading indicates funds that will no longer be open to new contributions after April 1.

All Capitalization Funds: The Ford Plan Administrators have added Janus Aspen Growth Fund to the lineup. This fund is a true growth fund that mirrors the performance of the highly-regarded Janus Fund. In the Ford plan lineup, it is most comparable to Fidelity Capital Appreciation.

As a growth-oriented complex, the Janus family of funds have had a miserable last two years, significantly under-performing both the broad market and their style-specific benchmarks. When growth investing comes back into vogue Janus will again have their day in the sun, but at present we rate the fund neutral.

Mid Capitalization Funds: The plan adds the Invesco Dynamics Fund to the mid-cap growth section of the lineup while removing Fidelity Independence.

It's not clear what the plan administrators were thinking here as comparing the two funds leads us to conclude that Independence is the better option of the two. In fact, over the past seven years INVESCO Dynamics has under-performed the market in all but two years. The only possible explanation we can come up with is that INVESCO Dynamics is a more "constrained/dedicated" mid-cap growth offering than Independence. In many ways INVESCO Dynamics can be likened to Janus Aspen Growth in its investment style and with the growth sector of the market aggressively priced in our view, we rate the fund currently unattractive.

Small Capitalization Funds: While the Ford Retirement plans added two nice investment options to the Small Cap Balanced sector of the plan, it took away two from the Small Cap Growth sector - namely Fidelity Small Cap Independence and T. Rowe Price New Horizons.

We recommend investors who currently hold Fidelity Small Cap Independence continue to do so as manager Jamie Harmon has been doing a fine job navigating the sector. Additionally, we continue to find Vanguard Explorer very attractive. Investors who wish to maintain style diversification within the small cap sector, should look to combine either Small Cap Independence or Explorer with either Royce Low Priced Stock or Neuberger Berman Genesis in a 50%/50% mix.

Hybrid Funds: Ford has replaced a convoluted and overlapping "hybrid" fund lineup with a single, more comprehensive series of offerings.

The newly added Fidelity Freedom funds are designed for investors targeting specific retirement dates as opposed to style focuses (Growth or Income). The longer the targeted time period, the more equity exposure the fund takes on and, as the target date becomes closer, the funds reduce their market exposure and increase bond and cash equivalent holdings to lower the investor's potential for loss. Unlike Fidelity's Asset Manager Funds that invest directly in stocks and bonds, the Freedom Funds invest directly in other Fidelity Funds to accomplish this asset mix.

The Freedom funds offer a nice approach and will appeal to a good many retirement plan participants who desire a passive approach to portfolio management. However, we believe the asset allocation decisions provided by these funds are crude at best. The Freedom Funds attempt to make a decision about an investor's asset mix based solely on age. An investor's financial goals (desire for gains) and tolerance for risk are other key factors that should ultimately determine investment strategy and asset allocation. Because of the "mechanical approach" to changing the asset allocations over time and the Freedom Funds' mediocre performance, we prefer an active approach to portfolio management.

For conservative investors, we believe Fidelity Balanced and Puritan are still good options within the plan and investors currently holding these funds should continue to hold them after the plan transition on April 1, 2002.

Large Capitalization Funds: The plan administrators have chosen to discontinue Fidelity Growth & Income, Fidelity Trend and Scudder Growth & Income.

Additionally, Vanguard Index 500 is being replaced in the TESPHE plan with Vanguard Institutional Index Plus. Both funds are tied to the returns of the S&P 500 but Institutional Index Plus has lower ongoing management fees which should serve investors well.

We would have liked to have seen one or two additional actively managed funds added to the Large Cap Balanced universe, but as it stands Fidelity Dividend Growth remains our fund of choice in the category followed by Vanguard Institutional Index Plus.

Mid Capitalization Funds: The plan has added what we term a mid-cap balanced fund, the U.S. Extended Market Index Fund, to the investment universe.

Like Vanguard Institutional Index Plus, Extended Market is an index fund, however it is targeted to the Wilshire 5000 less the S&P 500. In essence the fund gives investors an opportunity to passively extend their investments into the smaller capitalization sectors of the market that have significantly outperformed the broad market over the past two years and, we believe, will continue to exhibit stronger returns in the immediate future. We rate the U.S. Extended Market Fund a buy at present.

Small Capitalization Funds: Perhaps the most timely changes to the various Ford plans come from beefing up the universe of smaller cap offerings through the addition of both Royce Low Priced Stock and the Neuberger Berman Genesis funds.

Both Low Priced Stock and Genesis are small cap funds that have performed very well and are biased towards value over growth in the long term. Over the past six months however both have been better correlated to the small-cap balanced benchmark - of the two, NB Genesis currently correlates better with Small Cap Value than does Royce Low Priced Stock. Overall we find both funds very attractive and rate them very strong buys at this time.

The value-oriented fund offerings within the Ford plan have been winnowed down significantly during the plan's restructuring.

All Capitalization Funds: Vanguard Index Value is out and Oakmark Select Equity I is in.

This is a nice step up for the Ford Retirement plans. We assume that Oakmark Select I will be managed in a similar manner to the recently closed Oakmark Select Fund. If this is the case, manager Bill Nygren, named Morningstar manager of the year in 2001, should continue to do a superb job by concentrating his portfolio in a diverse group of value-priced equities. While Oakmark Select's performance has been outstanding over the life of the fund, investors should recognize that there will be periods when this fund trails the broad market in general and its sector benchmark in specific.

Large Capitalization Funds: The Ford plan recently decommissioned the Fidelity Utilities fund.

While the fund has lagged since the middle of last year when energy prices began heading south, we viewed it as an attractive opportunistic vehicle over the longer term. No replacement was made.

Mid Capitalization Funds: One of the larger holes left in this restructuring can be found in the Mid-Cap Value sector of the market. By our account the plan removes the only two diversified options for investors looking to gain specific mid-cap value exposure, the second-best performing sector of the market so far this year.

While both Fidelity Value and T. Rowe Price New Horizons have only been average performers in the sector, each has performed well recently when compared to other domestic equity funds offered within the plan, including Oakmark Select, Fidelity Dividend Growth, Royce Low Priced Stock and Neuberger Berman Genesis.

We recommend investors targeting the mid-cap value sector either continue to hold the two decommissioned funds or move into a combination of Oakmark Select and Neuberger Berman Genesis or Royce Low Priced Stock.

We continue to find Fidelity Real Estate attractive as an opportunistic offering with a mid-cap value tilt.

Small Capitalization Funds: While both Neuberger Berman Genesis and Royce Low Priced Stock are "value-biased" small cap funds, we are classifying them as "balanced" small cap offerings at present owing to their higher correlation with the balanced benchmark. As such we don't note any new additions to this sector - though both Morningstar and the plan administrator will.

Between the two "value-biased" small cap offerings, Neuberger Berman is the more value oriented of the two and should be used by investors seeking targeted small cap value exposure.

Additionally, we believe Ford Plan participants with positions in Fidelity Small Cap Independence, Vanguard Explorer and/or T. Rowe Price New Horizons should consider diversifying some small cap growth exposure into either Neuberger Berman Genesis or Royce Low Priced Stock.

The Global and International fund selections within the Ford Retirement plans were especially hard hit during the recent restructuring. A total of 15 global/international funds were removed from the plan while 4 were added. We were pleased to see that six of the seven Scudder & T. Rowe Price funds that had recently restricted investors from transferring money into them were excluded, as the restrictions made them irrelevant investment options for plan participants.

Global Market Funds: Plan administrators jettisoned four global investment options but added one new and, in our view, timely option. Strange as it may seem however, decision-makers chose to retain Citizens Global Equity, one of the least compelling investment options within the plan in our view.

Morgan Stanley Global Value Equity is ranked 5-stars by Morningstar in the "World Stock" category and has performed admirably during the last two years when value investing has trumped growth investing. In past expansionary periods when growth stocks typically outperform value however, the fund has lagged significantly. All in all, at present we find the fund attractive and start coverage with a buy recommendation. Even so, we would limit exposure to the international sector to 10-20% of an investor's total assets.

International Funds: We like the tact administrators have taken in the international fund category where it looks like a conscious effort has been placed on finding upper tier actively managed growth, value, and smaller capitalization offering to go along with a passively managed balanced fund.

The BGI EAFE Equity Index fund is the plan's low-cost, passively managed international fund offering that should match the foreign markets in any climate. We view Templeton Foreign as a strong actively managed "value-oriented" multi-cap offering, while Janus Aspen International should shine in environments that favor growth over value. T. Rowe Price International Discovery provides a good mid-to-small cap offering but we believe the transfer restrictions placed on the fund make this a difficult fund to invest in.

While we are growing increasingly bullish on the international markets in general, we begin coverage of this category by rating Templeton Foreign a buy and BGI EAFE Equity Index a buy. Janus Aspen International and T. Rowe Price International Discovery are viewed as unattractive at this time. Further we recommend investors allocate any international exposure between Morgan Stanley Global Value and Templeton Foreign.

Regional and Emerging Markets Funds: All regional and emerging markets funds have been eliminated from the Ford Retirement plan.

We view this as unfortunate as these funds provided plan participants opportunistic investment options. For example, at present we view the emerging markets as attractive, yet there is now no way to capitalize on these views.

Broad U.S. Fixed Income Funds: Plan administrators have whittled down the number of U.S. Fixed Income offerings with this restructuring yet provide participants more diversity than in the previous plan. We like this. Gone are the overlapping offerings from Fidelity, Scudder, and T. Rowe Price. In their place administrators have chosen to provide investors with arguably the best actively managed general bond fund in the country managed by Bill Gross, a passively managed option, and an inflation protected, real return offering.

We like all of the new options but believe participants will be best served over the near term by investing their high-grade fixed income allocations in the PIMCO Total Return and PIMCO Real Return funds.

U.S. Sector Specific & Global Fixed Income Funds: The options available outside of high-grade bonds universe have been severely curtailed with this restructuring. In fact, T. Rowe Price High Yield is the sole opportunistic fixed income investment available to plan participants.

As anyone following our recommendations knows, we have been bullish on the High Yield market for the past few months and believe we are at the "sweet spot" for investing in domestic bonds. As stated earlier, we have also been bullish on emerging markets, including emerging markets debt. With Fidelity New Markets Income leaving the plan, new investors no long have a fund to make a concentrated investment in this sector.

As stated in the introduction, the preceding was our preliminary analysis of the new Ford 401(k) plan and its offerings. Bookmark our website to visit in the future for updates and the eventual integration of this page into our main Ford 401(k) page.

Or, to make life easier, if you are not already, sign on as an MCM client and leave all the work to us. Simply click here to request a free information package concerning Mainstay Capital Management and our portfolio management services for your 401(k) or other investment accounts. You can also call us toll-free at 1-866-444-6246 for any questions concerning our services or information provided on this website.

New Ford SSIP & TESPHE Plans