Products February 28, 2019

Investment Product and Service Launches

HB&T creates a collective investment fund with Jensen Investment Management, while Principal and NDW launch a new ETF model portfolio.

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Art by Jackson Epstein
Art by Jackson Epstein

Art by Jackson Epstein

HB&T Creates CIF with Jensen Investment Management

Hand Benefits & Trust (HB&T) has launched a new collective investment fund (CIF) in collaboration with Jensen Investment Management. HB&T is a national provider of employee benefit trust products and services.

The Jensen Quality Growth Collective Investment Fund seeks to provide qualified institutional investors with the firm’s flagship Quality Growth Strategy, with the lower shareholder servicing costs associated with a CIF. The Jensen Quality Growth Strategy seeks to invest in quality businesses that can weather all economic climates and aims to provide attractive returns while mitigating downside risk.

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Created by the Hand Composite Employee Benefit Trust and sponsored by HB&T, the CIF will enable Jensen to service a wide range of institutional investors, especially in the defined contribution (DC) market where plan sponsors are seeking compliant and more cost-effective investment options, according to HB&T.

The Jensen Quality Growth CIF launched on February 1, and will be accessible to eligible retirement plans through most recordkeeping platforms.

Principal and NDW Announce ETF Model Portfolio

Principal has partnered with Nasdaq Dorsey Wright (NDW) to present the Principal NDW Factor Rotation model portfolio.

The dynamic factor portfolio, which is comprised entirely of Principal’s U.S. equity factor exchange-traded fund (ETF) lineup, aims to identify those factors that will perform well over the coming months. According to Principal, this is the first guided ETF model from NDW that utilizes both momentum and mean reversion, in an attempt to capture short-term continuation signals while simultaneously avoiding performance drag due to holding momentum names too long. 

A total of six ETFs are considered for selection in the model portfolio, including Principal’s US Mega Cap Multi-Factor (USMC), Sustainable Momentum (PMOM), Price Setters (PSET), Contrarian Value (PVAL), US Small Cap Multi-Factor (PSC), and Shareholder Yield (PY) ETFs. The model first went live on February 8. 

“Factor investing will continue to grow in importance and adoption,” says Paul Kim, head of ETF strategy at Principal Global Investors. “Our suite of factor ETFs benefits from decades of active and factor investing expertise, the rapidly growing body of academic research, and the many advantages of a rules-based implementation in an ETF. We are delighted that Nasdaq Dorsey Wright has developed a relative strength methodology incorporating our factor ETFs to help investors achieve their unique investment goals.”

There is no overlay model fee in addition to the underlying ETF fees, which range from 12 to 38 basis points. However, financial advisers can only access the model portfolio through subscription to Nasdaq Dorsey Wright’s platform.

As part of the collaboration, Nasdaq Dorsey Wright is responsible for all aspects of portfolio construction and ongoing management, including fund selection and asset allocation decisions. Dorsey Wright selects ETFs for use in the model portfolio based on its proprietary “relative strength matrix” system and a new indicator for measuring momentum sustainability.

Compliance February 28, 2019

PBGC Seeks Recovery of Investment Losses for Terminated Retirement Plan

The lawsuit claims owners of Freedom Communications made ill-advised, highly speculative investments which caused the pension plan to lose tens of millions of dollars.

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The Pension Benefit Guaranty Corporation (PBGC) has filed a lawsuit for breach of fiduciary duties and prohibited transactions under the Employee Retirement Income Security Act (ERISA) against owners and service providers of Freedom Communications’ pension plan, which, after the company’s bankruptcy, was terminated and transferred to the PBGC as trustee.

The agency charges defendants with breaches of fiduciary duties under ERISA, including the duties of loyalty, prudence, and adherence to plan documents; transactions prohibited by ERISA; and knowing participation in breaches of fiduciary duties. The lawsuit claims owners of Freedom Communications made ill-advised, highly speculative investments which caused the pension plan to lose tens of millions of dollars.

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According to the complaint, one of the failed investments started when members of Pension Advisory Group, based in North Carolina, approached Freedom’s owners with a proposal which they claimed would instantly improve the plan’s funding status. Under this program, which the owners implemented, the plan purchased life insurance policies with Freedom employees as the insureds. An actuary retained and compensated by Pension Advisory Group then allegedly inflated the value of the policies by valuing them at the net present value of future death benefits, rather than using the correct valuation method, the cash surrender value of the policies. Freedom’s owners abandoned the program when they realized that the plan was legally required to use the cash surrender value, resulting in a loss to the plan of more than $7 million.

The lawsuit also alleges that Freedom’s owners invested in another life insurance scheme, which involved a complex program in which the pension plan purchased a portfolio of loans used to finance life insurance premiums for people unrelated to Freedom or the plan. PBGC says that although such portfolios can have economic value when the insured persons are in poor health with decreased life expectancies, members of Pension Advisory Group failed to obtain the medical information needed to make a meaningful evaluation. Rather than acquiring a valuable asset, the defendants acquired a program with no market value, and lost millions of dollars of pension plan assets.

Freedom’s owners are also accused of losing millions of dollars in plan assets by investing in a highly speculative and unproven foreign hedge fund, which is now worthless, and by causing the plan to buy stock in Freedom when they knew that the company was in financial distress. The stock is also now worthless.

The PBGC is seeking to recover these losses.

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