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Collective Investment Trusts
Old 09-14-2016, 11:47 AM   #1
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Collective Investment Trusts

When I FIRE'd, I left my 401k funds with my former employer.

They've since changed the custodian, now with Empower.

Just got an email that they're replacing a bunch of funds in the plan with "Collective Investment Trusts" or CTI:

Quote:
What is the difference between a mutual fund and a collective investment trust?

A mutual fund is an investment company registered with the U.S. Securities and Exchange Commission (SEC) that buys
a portfolio of securities selected by a professional investment advisor to meet a specific investment objective. Collective investment trust (CIT) funds are created by a bank or trust company for qualified retirement plans, such as 401(k) plans, which pool the assets of retirement plans for investment purposes. They are governed by rules and regulations that apply to banks and trust companies instead of being registered with the Securities and Exchange Commission (SEC) and do not require a prospectus or have a ticker symbol. These funds are also referred to as collective or commingled trusts.
In my case, my funds are being transferred from VBTIX to Vanguard Total Bond Market Index Trust, with gross expense ratios of .04% vs .035%.

OK, I can't complain about a lower ER.

Here is a specific description from VG:

Quote:
Vanguard Total Bond Market Index Trust

Ticker symbol: N/A

What it is: This fund is a collective investment trust fund, not a mutual fund. It does not require a prospectus or have a ticker symbol.

Goal: Seeks a high level of interest income by tracking the performance of a broad, market‐weighted bond index.

What they invest in: The fund attempts to track the performance of the Barclays Capital Aggregate Bond Index, which is a widely recognized measure of the entire taxable U.S. bond market. The index consists of more than 5,000 U.S. Treasury, federal agency, mortgage‐backed and investment‐grade corporate securities, with a total market value exceeding $4 trillion. Because it is not practical or cost‐effective to own every security in the index, the fund invests in a large sampling that matches key characteristics of the index (such as market‐sector weightings, coupon interest rates, credit quality and maturity). To boost returns, the fund holds a higher percentage than the index in short‐term, investment‐grade corporate bonds and a lower percentage in short‐term Treasury securities. Fixed income investment risks include interest rate risk (as interest rates rise, bond prices usually fall), the risk of issuer default and inflation risk. Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Share price, yield and return will vary.
I assume the investment makeup is similar to VBTIX but I don't like that it doesn't have a ticker symbol, making it a hassle to track. I guess I'd have to always log on to my 401k account in order to see what's happening.

Anyone deal with CITs?
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Collective Investment Trusts
Old 09-14-2016, 11:59 AM   #2
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Collective Investment Trusts

No but sounds exactly like the Comingled Pools that my employer moved us into several years ago with Fido. They are class K shares. No problems or concerns with my plan and I would be OK as long as VG or Fido is managing. I just track the comparable class A shares and the K shares are a tick better due to lower ER.


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Old 09-14-2016, 12:57 PM   #3
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Just a guess... and ONLY a guess...

I bet that a number of companies are probably going to go to something similar, no matter what you call it... I know that mine has been there for many many years...


The reason LAWSUITS..... if you have a fund that is sold in the open market you can then easily show if it is good or bad compared to other options.... but, if it is a generic 'bond fund', then it is easier to say, 'we are not like that one, so you cannot compare our fund to that'....


As always, who knows for sure....
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Old 09-14-2016, 02:08 PM   #4
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I highly doubt the lawsuit excuse. In our case megacorp absorbs significant admin fees and getting out from under a regulated security (e.g. Mutual fund) saves money for employer, employee, and custodian.


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Old 09-14-2016, 02:56 PM   #5
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What the heck is a "comingled pool"??


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Old 12-01-2016, 04:47 PM   #6
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So they transferred my holdings in VBTIX to this Vanguard Total Bond Market Index Trust in mid October and I found out it doesn't have a dividend.

VBTIX has a 2.44% dividend which was paid every month in my 401k account.

Now I can transfer it to my IRA or Roth IRA account with VG and put the holdings in VBTLX I suppose. Also avoid the $40 a year custodian fee.

Now supposedly this Trust has a .035% expense ratio vs. VBTLX which has a .06% expense ratio.

So in theory, it should net out to be the same? Is .06% the same as 6% (.06) or would it be .06 of 1%?

If it's the former, the difference between .06% and .035% would be 2.5%? Or would it be .025 of 1%, in which case the expense ratio difference doesn't come close to matching the loss of the 2.44% dividend?

Now I have to figure out if I would have to transfer the 401k to tIRA and then do Roth conversions or I can transfer directly to Roth.
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Old 12-01-2016, 05:01 PM   #7
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The dividends paid by the bonds owned by the CIT cause a change in the price of each unit or share of the CIT. You did not lose any dividends and will not lose them. They are just acccounted for in another way.

Let me repeat: There is no loss of the 2.44% dividend.
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Old 12-01-2016, 05:02 PM   #8
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It is .06 of 1% or think of it as 0.06%
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Old 12-01-2016, 05:20 PM   #9
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Originally Posted by LOL! View Post
The dividends paid by the bonds owned by the CIT cause a change in the price of each unit or share of the CIT. You did not lose any dividends and will not lose them. They are just acccounted for in another way.

Let me repeat: There is no loss of the 2.44% dividend.
Hmm, I guess I need to dig up a prospectus.

All I know is that every month, I got more shares of VBTIX because of those dividends being reinvested.

The amount was about the same, regardless of what bond prices were doing at the time.

Now maybe at this particular time, with bond prices dropping, maybe however the CIT treated dividends from the bonds, it prevented the CIT price from dropping further?

The value of my Vanguard Total Bond Market Index Trust holdings dropped almost 2.94% in about 30 days, from late October to late November.

During the same time period, VBTIX went from $11 to 10.65 so about 3.18%.

Assuming the asset mix between the VBTIX and the CIT were the same or very similar, I guess the CIT had a smaller loss than VBTIX, which could reflect the dividend and the lower expense ratio.

I guess I'll monitor it for a couple of months to see what happens.
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Old 12-01-2016, 05:30 PM   #10
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Is this the fund trust? https://institutional.vanguard.com/V...ew?fundId=1984
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Old 12-01-2016, 06:01 PM   #11
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Originally Posted by MichaelB View Post
It sounds like it, similar in name.

But the 401k claims .035% expense ratio, while this link says "none" on expense ratio.

The Price and Distributions tab appears to have the same price as in my 401k.
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