SAN FRANCISCO - Diversification has been the driving strategy behind the $3.5 billion defined contribution plan of Bechtel Power Corp., an approach that helped it weather the stock market turmoil of the past two years.
Six investment options are available to Bechtel employees, said Peter Landini, managing director at Fremont Investment Advisors, San Francisco, which runs the plan. Three are proprietary: a global manager of managers fund and two funds of funds, all designed specifically for Bechtel; two are Fremont mutual funds, a global bond fund managed by Pacific Investment Management Co. and a money market fund; and the sixth is a Standard & Poor's 500 index fund managed by Barclays Global Investors.
"We use several managers in those (proprietary) funds to mitigate risk and to offer participants exposure to a variety of strategies," Mr. Landini said in an interview.
The largest proprietary fund is the $1.5 billion global balanced fund, comprising six U.S. and foreign stock and bond managers. All strategies within that fund are actively managed except for a S&P 500 index strategy, which is managed by Mellon Capital Management Corp. and accounts for about 15% of the assets in that option. Other managers in the global fund are Sit Investment Associates Inc., Minneapolis, for its midcap growth strategy; Capital Guardian Trust Co., Los Angeles, for its core international strategy; Delaware International Advisers Ltd., London, for a value-oriented international strategy; Fremont Institutional Microcap, managed by Kern Capital Management, New York, microcap growth strategy; and PIMCO for exposure to a core bond strategy.
The overall effect of the blend tends to be "growthy," Mr. Landini said. The fund was up a compound annualized 7.4% for the five-year period ended Dec. 31, vs. its benchmark, the Lipper Global Flexible Funds index, up 6.2% annualized for the period.
The U.S. Stock Fund, with $360 million is equally divided among three actively managed mutual funds. They are the Ultra Fund of American Century Investments, Kansas City, Mo., a large-cap growth fund; a midcap growth fund from T. Rowe Price Associates Inc., Baltimore; and a small- to midcap growth fund run by Baron Capital Management Inc., New York, which uses a growth-at-a-reasonable-price strategy. The fund was developed to outperform the S&P 500 by using more active strategies. For the five-year period, it returned an annualized 11.3%, outperforming its benchmark, the Lipper Multicap Core Allcap index fund, which returned 9.6%.
The other fund of funds, the $100 million International Stock Fund, also is divided among three mutual funds: the Los Angeles based American Funds Euro Pacific Growth Fund, which uses a large-cap growth strategy; the Artisan International Fund of Artisan Partners LP, Milwaukee, using a GARP strategy, and the Glenmede Institutional International Equity Fund offered by Glenmede Trust Co., Philadelphia, a value strategy. This fund returned 4.7% annualized for the five years, beating its benchmark, the Lipper International Fund index, which was up 1.9%.
By offering the blended options, participants are less likely to be hurt by poor market conditions, Mr. Landini said. "One style might do well at one time, while another outperforms at another time."
The second most popular option is the global bond fund managed by PIMCO. Assets have flowed into that fund in recent years as more employees have shifted from stocks. The fund, now with $835 million, was up 8.1% annualized for the five years, compared with its benchmark, the Lipper International Bond index, up 6.5% in the period.