The federal government's Thrift Savings Plan is switching benchmarks for its international investment fund. (Jonathan Snyder/Stars and Stripes)
The federal government’s retirement vehicle is changing the benchmark for its international fund this year to one that eliminates holdings in companies from Hong Kong.
The Thrift Savings Plan, or TSP, will track its I Fund against the Morgan Stanley Capital International All Country World Investable Market Index excluding United States, excluding China, excluding Hong Kong, or MSCI ACWI IMI ex USA ex China ex Hong Kong, according to a November announcement by the savings plan directors.
TSP is a retirement savings and investment plan for federal government employees and uniformed services members.
A benchmark index is a standard against which the performance of similar funds, fund managers and investors are evaluated.
Export bans and investment restrictions that affect businesses in Hong Kong created uncertainty that outweighs the benefits of including them in the TSP I Fund, the plan’s international index fund, according to the release.
President Joe Biden signed an executive order in August that restricts outbound investment to China, Hong Kong and Macau in areas deemed critical to U.S. national security. “These include three main industries: advanced computing chips and microelectronics, quantum technology, and artificial intelligence,” according to The Council on Foreign Relations.
The current I Fund benchmark, the Morgan Stanley Capital International Europe, Australasia and Far East Index, has never invested in mainland China but since 2001 has had less than 4% of its investments in Hong Kong, according to the release.
The MSCI ACWI IMI ex USA ex China ex Hong Kong is also larger than the current benchmark, with holdings in 5,621 large-, mid- and small-cap stocks in 21 developed markets and 23 emerging markets, according to the release. The MSCI EAFE Index includes 798 large- and mid-cap stocks in 21 developed markets.
TSP participants shouldn’t expect this transition to happen all at once, a Federal Retirement Thrift Investment Board spokeswoman told Stars and Stripes by email Jan. 8.
“The change is a process that will take multiple months to complete,” Kim Weaver said. “We aren’t announcing when we are going into specific countries to prevent front running – in other words, people buying stock ahead of our entrance.”
This adjustment to the I Fund will more than double the number of countries included in the fund and will change the number of equities by 700%, the release said.
The Federal Retirement Thrift Investment Board expects the new I Fund benchmark to outperform its current benchmark, according to the release.
The MSCI EAFE Index averaged a 4.28% return over the past 10 years, according to the TSP website. The I Fund outperformed its benchmark by 0.35% over the same period.
As of October, TSP participants had invested $68 billion in the I Fund, the release said.
“The Board made this decision because by broadening the index, the Board is expanding investment opportunities and improving the I Fund’s risk-return profile, in line with its statutory mandate and fiduciary duty to the TSP’s 7 million participants,” Weaver said.
