Planned I Fund Change—Not All about China

While most of the focus of the planned change to a broader index for the TSP’s international stock I fund has been on including China, that would have been just one of many countries to have been added.

With the TSP board now having decided to delay that changeover, it will be up to a newly constituted board—assuming President Trump’s three nominees for the five-member board are confirmed by the Senate—to decide how to handle the issue. The presumption is that the board will vote to keep the I fund index as it is, but other options also are available, including investing in an index that is broader but excludes China.


The change in indexes had been in process since the TSP board voted in 2017—and again in 2019—to use a broader index on grounds that it presents a better representation of non-U.S. stock markets than does the index now in use for the I fund.

The present index reflects markets of 21 countries, led by Japan, accounting for 24.5 percent, the United Kingdom 16.7 percent, France 11.5, Switzerland 9.1 and Australia 6.9 (figures are as of year-end 2019).

The wider index would include all of those countries plus Canada and 26 countries considered “emerging markets” even though some of them have large economies—among them the so-called “BRIC” countries, Brazil, Russia, India and China. As of April 30, stocks of Japan accounted for 17.8 percent of that index, followed by China and the United Kingdom, 10 percent each, Canada 6.6 percent, and Switzerland 6.5.

In terms of dollar amounts, the I fund is the smallest of the five basic TSP funds, with $19 billion directly invested in it as of March 31. Counting the assets in the basic funds in the lifecycle L funds, it is the second-smallest, above the bond F fund, at $41.2 billion.

TSP Delays I Fund Change Amid Pressure from White House

I Fund Changes Back in Spotlight Amid China Tensions:
Although the TSP is very large, the I Fund is one of the smallest funds with $54 billion in assets as of year-end 2019. This switch would put approximately 10% of it, or about $5-6 billion, into Chinese stocks. The 2040 lifecycle fund, representing a diversified TSP allocation, has about 25% invested in the I Fund, and if 10% of that fund is invested in China, it would mean about 2.5% of the total account is invested in China.

Some members of Congress and the Trump administration do not want the TSP to invest in Chinese companies. For example, some point out the irony of U.S. soldier retirement plans putting funds into Chinese firms, which represent a potential adversary to them. On the other hand, China is heavily invested in the United States; they own over $1 trillion in U.S. Treasury securities as well as a significant amount of U.S. real estate and stocks, so they ironically do help fund the U.S. military in an orders-of-magnitude larger way than Americans fund China’s military.

April Saw Slight Reversal in Damage to TSP Stock Funds

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