Disney Offers Solid Stock Funds in Its 401K plan, But Can Expand Its Plan More Broadly

The Walt Disney Company DIS, together with its subsidiaries, operates as an entertainment company worldwide. The company?s Media Networks segment includes domestic broadcast television network, television production and distribution operations, domestic television stations, cable networks, domestic broadcast radio networks and stations, and publishing and digital operations. It operates the ABC Television Network and 10 owned television stations, the ESPN Radio and Radio Disney networks, and 46 owned radio stations. The company was founded in 1923 and is based in Burbank, California.

The Walt Disney Hourly Savings and Investment Plan uses Disney's Master Trust. The available investment funds are those in the Master Trust.

The Walt Disney Hourly Savings and Investment Plan consists of 28 funds. These funds enable participants to gain exposure to 3 major assets: US Equity, Foreign Equity, Fixed Income.

The following table shows the number of funds offered in each category.

The plan offers many solid stock funds including Sequoia (SEQUX), Ariel Appreciation (CAAPX), Baron Growth (CGRIX) and Royce Low Priced Stock (RLPHX). In the fixed income side, it only offers PIMCO Total Return fund (PTTRX),  run by Bill Gross.

As of Mar 22, 2011, this plan investment choice is rated as average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are . It has the following detailed ratings:

Diversification -- Rated as below average (26%)
Fund Quality -- Rated as average (44%)
Portfolio Building -- Rated as average (44%)
Overall Rating: average (39%)

The Disney Plan is a typical 401K plan that is U.S. and developed countries centric: it lacks of other major asset exposure including emerging market stocks and real estate investments (REITs). This is reflected in the performance of the following model portfolios that adopt asset allocation strategies: strategic and tactical asset allocation strategies (SAA and TAA for participants in Disney's 401K Plan).

Strategic Asset Allocation is based on well known modern portfolio theory and its key features include: diversification, proper fund selection and periodically re-balancing.

Tactical Asset Allocation works on a diversified array of assets provided by funds in a plan and adjusts asset mixes based on market conditions such as asset price momentum utilized by TAA.

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, we also include the moderate model portfolios of a typical 3 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:

US Equity: SPY or VTI
Foreign Equity: EFA or VEU
Fixed Income: AGG or BND
Performance chart (as of Mar 22, 2011)

Performance table (as of Mar 22, 2011)

Currently Commodities, Real Estate and US Equity are doing well. Only US Equity is available to The Walt Disney Hourly Savings and Investment Plan participants.

This plan beats the three asset benchmark by virtue of the US asset class choices. If would be a stronger plan with more candidate funds in some missing major asset classes such as emerging market stocks (EEM) (VWO) and REITs (IYR) (VNQ).

To summarize, The Walt Disney Hourly Savings and Investment Plan participants benefit from the strong US stock funds in the plan. But a broader offering would certainly help to improve return and reduce risk.

Symbols:DIS,SPY,VTI,EFA,VEU,AGG,BND,EEM,VWO,VNQ,IYR,

Exchange Tickers:DIS, SPY, VTI, EFA, VEU, AGG, BND, EEM, VWO, VNQ, IYR

Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.