As Visteon 401(k) participants already know, there are significant changes in the Visteon Investment Plan (VIP) and Visteon Investment Savings Plan for Hourly Employees (VISPHE) in 2003.

Seventeen new investment options were added to the Visteon plans on May 1. On August 1, new contributions or exchanges into 44 of the current investment options will no longer be allowed. On December 1, 2003, these 44 investment options will be removed from the Visteon plans entirely.

On this page of the website we provide a preliminary analysis and insight into the new Visteon 401(k) plan and new investment options. (Analysis and opinions are as of 6/30/2003).

We are taking full advantage of these new options to the benefit of our Visteon clients' portfolios. In addition, we are making any needed adjustments in client portfolio holdings as required to assure the asset allocation remains consistent with each clients' investment objectives and the new plan.

If you are not already a client of Mainstay Capital Management and would like to become one, call us toll-free at 1-866-444-6246 or click here to receive more information. In addition, feel free to call us or send email to Visteon@mainstaycapital.com for any questions you have concerning the new Visteon 401(k), our analysis of the new plan, our firm, or your individual account.

Following is about ten pages of analysis and insight into the new plan. You can read up on the changes and new fund offerings, or to make life easier, if you are not already a Mainstay Capital Management client, become one and leave all of 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.

In the following, we have categorized the current, new, and phased out investment options by Growth, Blend, and Value funds and by Large, Mid, and Small Capitalization funds. We also include categories for Hybrid, International/Global, Specialty, and Income funds. In this analysis we will use the style as provided by Morningstar in the letter sent to VIP and VISPHE participants earlier this year. However, where we believe the fund’s style has shifted from that stated by Morningstar, we will point it out. 

For each category, we list the new or existing funds remaining In the plan on August 1 and funds that will eventually be Out of the plan on 12/1/2003. A “(c/o)” following the fund name identifies it as a fund that is “carried-over” from the current plan into the new plan.

Growth Funds

Large Capitalization

We are sorry to see Fidelity Independence leave the plan. This fund had periods of outperformance under the management of Fergus Shiel before he left Fidelity. Jason Weiner, who now runs this fund, is an up-and-comer within Fidelity’s ranks and we believe the fund will be attractive in the future. We are even more sorry, however, to see Fidelity Capital Appreciation (categorized by Morningstar as large cap blend, but very much a growth fund) leave the plan. Harry Lange has delivered stellar year-to-date, one-year, and three-year returns that far surpass Janus Advisor Capital Appreciation’s (new to the plan) performance over these time horizons. Fidelity Capital Appreciation has been one of our favorite picks in this sector in 2003. Fidelity Growth Company is our second pick, but its risk-adjusted returns have not been quite as good as Fidelity Cap App. Fidelity Contrafund is categorized as a large cap growth fund, but has shown a much more defensive style recently than the other funds in this category.

Unless we have a significant change in the market environment, we believe growth investors should continue to hold Fidelity Growth Company and/or Fidelity Capital Appreciation (until phased out of the plan). More conservative investors should consider Fidelity Contrafund.

Mid Capitalization

Fund manager, Ron Baron’s eclectic style of investing is both more concentrated and more prone to periods of strong-over and strong-under performance relative to the mid cap growth sector. As an example, from January through mid-June of this year, Baron Asset returned about 9% versus a 21% return for the Russell Mid-Cap Growth Index (a benchmark index for mid cap growth stocks). Two funds mentioned above, Fidelity Capital Appreciation and Fidelity Independence, while being large cap funds, exhibit styles more representative of the mid to large cap growth sector. These funds returned 24% and 12% respectively over this period.

Although Baron Asset has a solid long-term track record, we see no strong reason to add it to a growth portfolio at this time, when options such as Fidelity Growth Company and Fidelity Capital Appreciation are still available.

Small Capitalization

Performance of these two funds has been very similar over the years. We believe deletion of one of these funds makes sense due to the overlapping investment styles. In addition, we believe Vanguard Explorer is a good option for small cap growth exposure going forward.

Blend Funds

Large Capitalization

This sector of the current plan was certainly over-represented. While there are plenty of large cap blend funds within the fund universe to choose from, among the eleven that were in the Visteon plan, we believe for the most part the better funds were left in the plan (except for Fidelity Capital Appreciation, mentioned earlier). Fidelity Dividend Growth is our favorite in this category. We believe it is a good long-term holding for any growth portfolio as long as Charles Mangum is at the helm. His long-term performance, both absolute and risk-adjusted, has been very good.

Mid Capitalization

Although there are no funds representing the mid cap blend style, we believe a mix of growth and value funds can accomplish this goal.

Small Capitalization

Although there is no longer a fund dedicated specifically to the small cap blend style, we think small caps are pretty well represented with Vanguard Explorer and Fidelity Low Priced Stock (discussed in the value fund section of the analysis). Fidelity Small Cap Independence had periods of good performance, but we won’t miss it. A mix of Vanguard Explorer (growth) and Fidelity Low Priced Stock (value) is a better way to achieve a “small cap blend” anyway.

Value Funds

Large Capitalization

The Clipper Fund has a very good long-term performance record. Like Baron Asset, however, it is very concentrated (holding less than 40 stocks as of mid June 2003) and is therefore subject to periods of both strong outperformance and strong underperformance. Earlier this year, Clipper experienced a severe short-term decline, probably not expected by many of its shareholders that thought they owned a conservative, large cap value fund. We believe it still makes a good long-term holding for conservative growth investors. Just be prepared for short-term volatility with this fund.

We were glad to see Fidelity Equity Income make the cut. This fund is a nice alternative for large cap value exposure. Stephen Peterson has managed this fund for ten years and has had periods of very good performance relative to this sector and the market overall.

Mid Capitalization

American Century Equity Income, in our opinion, has the same problem as Baron Asset in that it tends to be a more concentrated fund. This leads to erratic performance based largely on the manager rather than the sector’s performance. One factor we find attractive in this fund currently is its high yield. We believe high yielding stocks will perform well in the near-term because of the tax law changes on dividends.

American Century Equity Income is a lower volatility fund with a solid performance record; however, investors should expect performance that could vary sharply from that of the overall mid cap value style.

We will miss Fidelity Value. While not the best performer in this sector industry-wide, it was a welcome addition in our portfolios during the bear market as a defensive position that also offered opportunity when mid cap value stocks performed well.

Small Capitalization

As with the Ford 401(k) plan, small cap value was a serious shortfall in the Visteon plan. In 2001 and 2002, when we wanted exposure to this sector for safety and opportunity, there was no option available. With Fidelity Low Priced Stock, this hole has been sufficiently filled. Still run by its founding manager in 1989, Joel Tillinghast, this fund has a stellar long-term record. More recently in the bear market of the last three years, it provided a safe haven for investors. In 2001 Fidelity Low Priced Stock returned 27% in a year where the S&P 500 declined 12%. It has been a large position in many of our 401(k) portfolios where it is available. Although this fund will lag the market when small cap value stocks are out of favor as in the late 1990’s, we recommend it for conservative investors as a long-term holding for small cap exposure and portfolio diversification.

Hybrid Funds

In the hybrid fund category, Visteon has replaced a convoluted and overlapping 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. As the target date becomes closer, the funds reduce their equity 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 the proper asset mix. One shortfall we have noticed in the past and current holdings in the Freedom Funds is that small cap and mid cap value are not represented.

The Freedom Funds offer a nice approach and will appeal to 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, with no regard for the changing market environment, and lack of exposure to specific sectors when opportunistic, the Freedom Funds’ performance has been only mediocre. We much prefer an “active” approach to portfolio management that realizes timely opportunities in the financial markets and strives to maximize gains and minimize downside consistent with an individual investors specific objectives, risk tolerance, and investment time horizon.

Global/International Funds

The Global and International fund sectors were especially hard hit in the restructuring of the Visteon 401(k) plan. A total of 15 global/international funds were removed from the plan while only four were added. We were glad to see that the Scudder and T. Rowe Price funds that had restricted plan participants from exchanges into these funds were excluded, as the restrictions made them useless options for active portfolio management.

Global

Plan administrators jettisoned all four global offerings and added nothing to the plan. It would appear that the principal surrounding this move is that investors seeking global exposure can accomplish it through a combination of domestic and international stock funds. We are fine with this approach.

Diversified International

Within the international universe, we view Templeton Foreign as a strong, actively managed “value-oriented” multi-cap offering and Fidelity Diversified International as a solid, diversified “growth-oriented” offering. Within the small cap sector, T. Rowe Price International Discovery provides a good small-to-mid cap growth offering, but the transfer restrictions imposed on this fund within the plan continue to hinder its opportunity for active portfolio management. Templeton Foreign Smaller Companies rounds out the diversified international offerings as a good small cap value fund.

Regional and Emerging Market

We are very disappointed to see so many regional and emerging market funds removed from the plan. There are periods where the ability to make investments in specific regions of the international markets can be very fruitful.

We do find Templeton Developing Markets a welcome addition to the plan in light of these significant reductions. It is extremely interesting, however, that Morningstar recommended this fund for the Visteon 401(k) plan and then (effective June 20) removed it from there own 401(k) plan, replacing it with American Funds New World.*  Go figure.

* Source: InvestmentNews, June 30, 2003 issue, page 5.

Specialty Funds

Real Estate (REITs) has been a very attractive sector during the bear market of the last three years. Fidelity Real Estate is a good performer within this sector. We are glad to see it remain in the plan. This fund offers income and conservative growth investors a way to further diversify their portfolios in a sector that has a low correlation with either stocks or bonds.

Visteon Stock Fund provides plan participants with a way to indirectly invest in Visteon stock. We caution investors to remember the general rule for diversification. That is, no one stock should ever constitute more than about 10% of your total investment portfolio. We would advise plan participants keep this in mind when investing in the Visteon Stock Fund.

In our opinion, the plan administrators have been shortsighted in removing T. Rowe Price New Era from the lineup. Unlike any other offerings within the plan, this fund concentrates its investments in natural resources. Again, this fund provides a concentrated play in a specific sector as well as an opportunity for further diversification of an investor’s portfolio. Fidelity Utilities, although suffering poor performance over the past few years, offers a pure play in the utilities sector when favorable and can add to overall portfolio diversification.

Income Funds

This is one area of the new plan where we see a vast improvement in fund offerings with one exception.

The overlapping offerings from Fidelity and Scudder are gone. In their place plan administrators have provided arguably the best actively managed bond fund in the country – PIMCO Total Return, managed by Bill Gross. PIMCO Real Return gives investors an opportunity to invest in Treasury Inflation Protected Securities or TIPS. This fund is a good alternative in an inflationary environment where other high quality bond funds can be adversely impacted. We are glad to see T. Rowe Price High Yield remain in the plan to provide exposure to junk bonds, a sector we have strongly favored this year. (See “Investing in Junk Bonds” for our insight into this sector of the bond market back in December). We wouldn’t mind, however, if plan administrators had found their way to replace this fund with Fidelity Capital & Income, a fund we like even more for a pure play in junk bonds.

Most disturbing in this sector is the elimination of Fidelity New Markets Income. This fund gave plan participants a way to gain exposure to emerging market debt. This sector of the bond market has been extremely hot over the past 18 months or so and this fund provided a good offering to take advantage of it. Managed by John Carlson, this fund has been extremely volatile, but has a very good long-term track record. We are very disappointed to see it leave the plan.

Closing

As stated in the introduction, the preceding was our preliminary analysis of the new Visteon 401(k) plan and the new investment options. Bookmark our website to visit this page in the future for updates to this analysis and our regular Visteon page.

Or, to make life easier, if you are not already a client, sign on with Mainstay and let us navigate your course to wealth! 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 the information contained on this website.

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