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Microsoft 401(k) Plan Replaced Fidelity Overseas with A Separately Managed Account

Contributed by mm | December 13, 2007 4:20 AM PST

401k.jpgAdministrators of Microsoft's 401(k) Plan are really working hard lately to reengineer the program for the benefit of employees.

Earlier this year, the Plan announced replacement of Fidelity Overseas (FOSFX) with Russell International Growth Account, a "separately managed account", or SMA, that is exclusively created for the Microsoft Plan, and managed by Russell Investments using three separate managers, currently Hansberger Global Investors, Neuberger Berman and UBS Global Asset Management.

According to the Plan Administrators, Fidelity Overseas was removed as an investment option due to concerns about fund’s investment process and performance, the new fund manager’s management ability, the growth of assets that may negatively affect performance, and external advisor's recommendation. The Administrator also believes the new Russell International Growth Account, will likely to significantly reduces fees and have "increased likelihood of a higher risk-adjusted returns due to less portfolio volatility." In the FAQ accompanying the change, the Plan Administrators wrote:

After deciding to remove the Fidelity Overseas fund, the 401(k) Administrative Committee made a decision to replace it with an investment option that targets a broader benchmark and is more specific in its strategy. The Russell International Growth Account benchmarks against MSCI ACWI ex US Growth, which encompasses a growth style rather than a blended style (EAFE). MSCI ACWI ex US Growth also includes emerging markets and other regions not represented by EAFE.


In evaluating the universe of managers in this space, the 401(k) Plan Administrative Committee made a decision to adopt an active multi-manager approach. The primary benefits of a multi-manager strategy include the following:

○ Increased likelihood of a higher risk-adjusted returns due to less portfolio volatility;
○ A more comprehensive approach created by selecting complementary managers who focus on different specialized growth strategies

The 401(k) Plan Administrative Committee chose Russell Investments because it is considered an industry leader for multi-manager strategies. The primary reasons for choosing the Russell Investments include the following:

○ Successful history of blending outside sub-advisors with complementary investment styles;
○ Access to managers normally closed to new investors;
○ It offers a separately managed account that significantly reduces fees relative to retail mutual funds; and
○ It implements performance enhancing services (e.g. cash equitization).


Many plan participants accepted the move with suspicion, especially given Fidelity Overseas is really on a winning streak so far this year. Nevertheless, with the change, all Fidelity Overseas balance was converted to the new SMA option on November 1st.

Apparently the Administrators were only testing water with the Russell International Growth Account move. Just yesterday, our 401(k) Plan Administrators announced several other upcoming changes. Stay tuned as I will discuss them soon in a separate post.

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