The new index notably does not include stocks of mainland China and further drops stocks on the Hong Kong market. Image: Dennis Diatel/Shutterstock.com
The TSP has released some additional information on basing the I fund to a different index of international stocks, although it was not specific on timing except to say that it will be completed by year’s end, as previously announced.
A posting notes that under a decision made by its governing board last year, the fund will be changed to track the MSCI All Country World Investable Market Index ex USA ex China ex Hong Kong (MSCI ACWI IMI ex USA ex China ex Hong Kong) Index, rather than the MSCI Europe, Australasia and Far East (MSCI EAFE) Index.
“This change will further diversify I Fund investments and give TSP participants access to more markets and companies. Based on a thorough analysis, the Board expects the new index to offer opportunities for higher returns without a significant increase in risk,” it says.
It says that the current index reflects the stocks of about 800 large and medium sized companies in 21 developed companies, representing about 55 percent of non-U.S. stock markets. The new index in contrast will reflect more than 5,000 large, medium and small companies in those same countries plus 23 emerging market countries, representing 90 percent of the non-U.S. markets.
The new index notably does not include stocks of mainland China and further drops stocks on the Hong Kong market, which the current index reflects. Those moves may bring an end to a years-long controversy over investment of TSP funds in the latter and potential investment in the former with the long-planned broadening of the fund to reflect stocks of additional countries.
To make the transition, “TSP fund managers will need to sell some stocks and buy others to move to the new benchmark index. To minimize costs, the managers will strategically choose dates and times for these transactions over a period of several months,” the posting says.
“We can’t disclose exact timing in advance because we need to protect the fund from the potential for other investors to have an unfair trading advantage. We’ll announce when the transition to the new benchmark index is complete, which will be no later than December 31, 2024,” it says.
The I fund is the second-smallest of the TSP’s five core funds—the bond F fund is smaller—accounting for 9.2 percent of the total as of year-end 2023, counting its shares in the lifecycle L funds.
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