How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

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iim7V7IM7
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How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by iim7V7IM7 »

I work for a large Dow 30 company so our 401k plan is very large. The only passive bond index fund choice available in my 401k managed by Fidelity is called the “Fixed Income Index Fund”. They only ofer limited information on the investment in a Morningstar style format. It targets the Bloomberg US Aggregate Bond Index. It is managed by State Street Global Advisors and interestingly it says “this investment option is not a mutual fund”. I have 40% of my 401k in this bond fund.

It has a gross exp. ratio of 0.027%,
a turnover rate of about 90%,
an average maturity of 8.46 years,
an average duration of 6.74 years,
about 71% are AAA, with 100% > BBB,
It looks to be 2/3 invested in Treasuries and 1/3 in corporate bonds
93% invested in the USA.

Looking at the State Street Global Advisor Site the investments and targets track the State Street Aggregate Bond Fund (SSFEX). Is this an unusual situation for it to not be a mutual fund or to have a private fund as part of another? It is my only non active bond fund choice so I am invested in it.

The rest of my equity investments are searchable mutual funds just not the bond “fund”.

35% - Fidelity SAI US Large-Cap Index Fund (FLCPX) - 0.016% exp. ratio
10% - Fidelity SAI Small-Mid Cap 500 Index Fund (FZFLX) - 0.05% exp. ratio
15% - Fidelity International Index Fund (FSPSX) - 0.035% exp.ratio.
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David Jay
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by David Jay »

This is likely a CIT - Collective Investment Trust, these are becoming pretty common in Fortune-100 401K plans.

Wiki here: https://www.bogleheads.org/wiki/Collect ... ent_Trusts
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lazynovice
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by lazynovice »

Sounds like a CIT, surprised you only have one of those.
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iim7V7IM7
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by iim7V7IM7 »

I just checked…

They are all CITs aside from my three Fidelity Index funds!

I had never looked because I have always had mix of the three Fidelity index funds. I just checked all all the other choices must be CITs because they all say that they are not “mutual funds”. They all have NAVS and are shown in a Morningstar fund composition style format.
UpperNwGuy
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by UpperNwGuy »

What are the pros and cons of CITs? I've never thought about them before.
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AnnetteLouisan
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by AnnetteLouisan »

Collective investment trusts are usually lower cost.
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telemark
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by telemark »

Rather than reporting dividend distributions, most CITs quietly reinvest them into the fund. This is not a problem inside a 401K, but it sometimes confuses people.
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JoMoney
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by JoMoney »

The "Pros" are they're lower cost.
The "Cons" are there are fewer disclosures available to the beneficiaries, you won't get the same level of consumer-level annual reports like the SEC requires for mutual funds. CIT's are Commingled Investment "Trusts", they have oversight from banking regulators like the OCC rather than SEC. In some situations there might be more oversight and higher level of fiduciary responsibility for the trust inside a workplace pension/401k plan.
You also won't be able to hold the CIT outside of your workplace retirement plan, so if you move the workplace plan to an IRA, you'll have to find some other holding to replace it.

For most intents and purposes it's a perfectly acceptable replacement for a "mutual fund", but should be offered at a lower cost then what a fund might be able to offer.
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by tibbitts »

JoMoney wrote: Tue Nov 30, 2021 9:58 pm For most intents and purposes it's a perfectly acceptable replacement for a "mutual fund", but should be offered at a lower cost then what a fund might be able to offer.
I know there was a cost advantage in the "old days", but I'm not sure there is likely to be a cost advantage in an era of extremely low-cost institutional funds? So possibly some of the availability of these funds is for historical reasons.
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JoMoney
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by JoMoney »

tibbitts wrote: Tue Nov 30, 2021 10:22 pm
JoMoney wrote: Tue Nov 30, 2021 9:58 pm For most intents and purposes it's a perfectly acceptable replacement for a "mutual fund", but should be offered at a lower cost then what a fund might be able to offer.
I know there was a cost advantage in the "old days", but I'm not sure there is likely to be a cost advantage in an era of extremely low-cost institutional funds? So possibly some of the availability of these funds is for historical reasons.
Vanguard's Institutional Index Fund Institutional Plus Shares (VIIIX) has a .02% expense ratio
My last employer had a S&P 500 Index CIT that had a .005% ER

I need to go back and look at it, but I believe the "Stable Value Fund" in my current employers plan is structured as a CIT. There isn't necessarily a "mutual fund" version of it.

Many investors never even look at the quarterly and annual reports required by the SEC to be published for a mutual funds. There's less paperwork involved with running a "fund" as a "CIT" if they're able to, and inside a workplace pension or 401k plan they can.
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exodusNH
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by exodusNH »

JoMoney wrote: Tue Nov 30, 2021 10:57 pm
I need to go back and look at it, but I believe the "Stable Value Fund" in my current employers plan is structured as a CIT. There isn't necessarily a "mutual fund" version of it.
They're usually (always?) insurance products. They'll list expense ratios, but they're essentially meaningless since you have a guaranteed rate every quarter or year, which is after expenses.
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by tibbitts »

JoMoney wrote: Tue Nov 30, 2021 10:57 pm Vanguard's Institutional Index Fund Institutional Plus Shares (VIIIX) has a .02% expense ratio
My last employer had a S&P 500 Index CIT that had a .005% ER
That's what I mean: I believe the difference in the past was more like tenths of a percent. Have you happened to track relative performance of the CIT fund vs. any of the usual suspects (Vanguard, Fidelity, etc.)?
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JoMoney
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by JoMoney »

exodusNH wrote: Tue Nov 30, 2021 11:19 pm
JoMoney wrote: Tue Nov 30, 2021 10:57 pm
I need to go back and look at it, but I believe the "Stable Value Fund" in my current employers plan is structured as a CIT. There isn't necessarily a "mutual fund" version of it.
They're usually (always?) insurance products. They'll list expense ratios, but they're essentially meaningless since you have a guaranteed rate every quarter or year, which is after expenses.
Yes, the holdings/portfolio inside it contain a lot of insurance products, but having gone back and looked at it, the "fund" itself appears to be structured as some sort of "trust" and while the documents don't spell out whether it's considered a CIT it does explicitly say it's a "trust" and "not a mutual fund".
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Topic Author
iim7V7IM7
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Re: How unusual is it in a company 401k plan to have a fund that says “this investment option is not a mutual fund“?

Post by iim7V7IM7 »

I unfortunately do not really have an alternative choice so I hope that is a good vehicle. I have another 5-years until I retire and roll my 401k into an IRA. It is my single largest investment representing 40% of my 401k.

Stocks:
35% - Fidelity SAI US Large-Cap Index Fund (FLCPX) - 0.016% exp. ratio
10% - Fidelity SAI Small-Mid Cap 500 Index Fund (FZFLX) - 0.05% exp. ratio
15% - Fidelity International Index Fund (FSPSX) - 0.035% exp. ratio.

Bonds:
40% - Fixed Income Income Fund (The CIT I asked about) - 0.027% exp. ratio

Looking at the details of the State Street Aggregate Bond Fund K Series (SSFEX), this CIT seems to mirror its holdings.
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