Brethren Foundation Funds offers tactical investment options that provide its constituent organizations (clients) with the opportunity to have the asset allocation of their investment portfolios actively managed using the strategic investment options offered by BFI.
What
are Tactical Funds?
Tactical Funds
are BFFI Funds whose assets are invested in a mix of BFFI Strategic Funds
according to asset allocation targets set by an investment adviser within asset
allocation ranges established by the BFFI Board. Because BFFI Tactical Funds are
actively managed by the investment adviser, an additional fee is charged to BFFI
clients for assets invested in BFFI Tactical Funds.
Strategic Funds, in comparison, are the current BFFI investment options (e.g., Domestic Stock Fund, Bond Core Fund, and Balanced Fund) whose assets are invested with investment managers or in mutual funds selected by the BFFI Board. Tactical Funds are blended investment funds that are fully invested in various BFFI Strategic Funds. The Tactical Funds are managed to address client questions like —
- How do we decide which Strategic Funds we should use?
- Are there better or worse times to use certain funds?
- How often should we rebalance our portfolio?
The five Tactical Funds allow for a range of risk and return profiles. The chart below shows the five Tactical Funds and the relationship between expected return and risk.
The chart below lists the five Tactical Funds across the top and the Strategic Funds in which each Tactical Fund may invest along the left.
The five Tactical Funds allow for a range of risk and return profiles. The chart below shows the five Tactical Funds and the relationship between expected return and risk.
Detailed information about the Tactical Funds is available in the 2014 Information Statement. Copies are available upon request.
How
do the Tactical Funds differ from the Balanced Fund?
The Balanced Fund
is a Strategic Fund that is invested in the Domestic Stock Fund and the Bond
Fund. Although the Balanced Fund allows a range of between 30 percent and 70
percent in the Domestic Stock Fund and the Bond Fund, historically, the fund
has been invested 60 percent in the Domestic Stock Fund and 40 percent in the
Bond Fund and rebalanced on a fixed schedule.
The Tactical Funds may invest in a wider range of Strategic Funds, as indicated above, and which Strategic Funds and how much is invested in those Strategic Funds, within the limits of policy, are at the discretion of the investment adviser of the Tactical Funds. Changes can occur when the adviser deems it important, rather than on a specific schedule, as is true for the Balanced Fund.
The Tactical Funds use a tactical asset allocation model — a dynamic investment strategy that actively adjusts a portfolio's asset allocation, with the goal being to improve the risk-adjusted returns of passive management or strategic investing.
What
are the expected benefits?
The chart to the right
illustrates that the Tactical Funds are expected to provide additional return
over the return provided by the Strategic Funds, which is the sum of the asset
class return and the manager return.
The Tactical Funds, once selected, relieve organizations from the duty of managing asset allocation and rebalancing on a meeting-to-meeting basis. The organization’s duty remains in selecting and monitoring the Tactical Funds.
What
are the additional risks?
Any investment
strategy that diverges from a stated benchmark for the purpose of enhancing
performance is taking some measure of investment risk, as it could fail in its
attempt. In addition, these funds may invest in certain Strategic Funds that
traditionally have not been used by BFFI clients. While there is an expectation that inclusion of
additional asset classes should lower the long-term risk of the portfolio, the
short-term return could vary from historic client benchmarks.
Do
Tactical Funds comply with BFFI’s socially responsible investing guidelines?
The Tactical Funds
may invest in Strategic Funds that may not comply with BFFI’s socially
responsible investing guidelines; therefore, the Tactical Funds may not comply
with BFFI’s socially responsible investing guidelines.
What
are the additional expenses?
The Tactical
Funds have an additional level of expense over and above the expenses of the
Strategic Funds in which they are invested. The additional fee, which is
charged directly to the client account on a quarterly basis, is based on the
total BFI client assets invested in any of the Tactical Funds. Following is the
fee schedule for assets invested in Tactical Funds —
|
Account Size |
Annual Service Fee, Percent of Assets |
|
First $10,000,000 |
0.250% or 25.0 basis points |
|
From $10,000,000 to $20,000,000 |
0.125% or 12.5 basis points |
|
From $20,000,000 to $50,000,000 |
0.075% or 7.5 basis points |
|
Over $50,000,000 |
0.050% or 5.0 basis points |
Disclosure
These
comments and information are for reference and benchmarking purposes. Consult
the 2014 Information
Statement for further description of each
offering. Consult a qualified capital market professional for capital market
advice. The analysis is based on information which the author believes is
reliable, but no warranty, expressed or implied, is granted. The material
presented is of a general nature and does not constitute the provision of investment
or economic advice to any person, or a recommendation to buy or sell any
security or adopt any investment strategy. Opinions and forecasts expressed
herein are subject to change without notice. Information is not guaranteed as
to its accuracy.