While far from perfect, the MFW has some hidden gems, and GVSXX is one of those. Image: Who is Danny/Shutterstock.com
By: Scott Swisher, TSP Change AlertsSince its inception in June 2022, the money market settlement fund in the TSP’s mutual fund window (MFW) has outperformed the TSP’s G Fund. The default money market fund in the MFW is the State Street Institutional U.S. Government Money Market Fund, ticker symbol GVSXX.
The table below compares the performance of GVSXX to the G Fund. In 2023, GVSXX outperformed the G Fund by 0.88%. And year-to-date (through October 2024), GVSXX has outperformed the G Fund by 0.81%.
So, what is the difference between the two funds? The G Fund invests strictly in short-term U.S. Treasury securities, while GVSXX also invests roughly half of its holdings in short-term U.S. Treasury securities, with the other half invested in either U.S. treasury repurchase agreements or U.S. government agency debt. To date, repurchase agreements have been issued by well know financial companies such as JP Morgan Securities, Wells Fargo, Citigroup, and Barclays and are collateralized by U.S. government securities. Government agency debt is issued by Federal government-sponsored entities such as the Federal Home Loan Bank and the Federal Farm Credit Banks Funding Corporation.
Well, that is confusing, so what is the bottom line? Where does GVSXX get its excess returns vs. the G Fund? From the debt of U.S. government-sponsored entities such as the Federal Home Loan Mortgage Corporation and the Federal Home Loan Bank. This debt currently accounts for only 13% of GVSXX’s assets and, while these entities are not backed by the full faith and credit of the United States, if you believe in the ongoing financial solvency and creditworthiness of the United States government, there is little additional risk in investing in GVSXX vs. the G Fund. These government-sponsored entities will be the first to be financially supported directly by the U.S. government, like they were in 2008.
I know the TSP’s mutual fund window has gotten a bad reputation for excessively high fees. And in some cases, rightly so. However, in the case of GVSXX, since it is the settlement fund for money moved to the TSP’s mutual fund window, there are no $28.75 transaction fees to invest in GVSXX. That is correct, simply pay your $150 annual MFW enrollment fee and, as a Federal Government employee, you have nearly unlimited access to GVSXX!
While I believe the MFW should be used for more than simply access to GVSXX, what type of Fed may be interested in using the MFW only for access to this fund as a G Fund alternative? This Fed would likely be close to or in retirement, have a conservative risk profile, and a larger TSP account balance. Take, for example, the Fed near retirement with a $600,000 TSP account balance. If this Fed had transferred the maximum allowable balance to the MFW (25% of their overall balance or $150,000) and used that $150,000 to invest in GVSXX in 2023 instead of the G Fund, that Fed would have been $1,170 wealthier entering 2024 (0.88% less the $150 annual MFW fee).
As a reminder, the TSP introduced the mutual fund window to enhance the plan’s competitiveness with private sector retirement plans, as well as to retain the investments of retired or separated Federal government employees. While far from perfect, the MFW has some hidden gems, and GVSXX is one of those gems!
Scott Swisher helps federal government employees better manage risk where they hold their largest amount of investment account assets, in their TSP accounts. He is owner of TSP Change Alerts, a company providing TSP tactical reallocation services to individual federal government employees. Scott can be reached at scott@tspchangealerts.com.
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