Investment consultant flags two funds for review; committee approves placing a recently added real-estate fund on watch and updates IPS

STOCKTON, Calif. — Vincent, a consultant from the HIAS Group, told the San Joaquin County Deferred Compensation Advisory Committee that the first quarter’s market volatility produced mixed results across asset classes and urged the committee to monitor two funds on the plan menu.

“Not only is the near term performance mediocre at best, but the style drift is significant,” Vincent said of one fund underperforming its mandate. He recommended bringing a search document for possible replacements to the next quarterly meeting for the Vanguard International Value position and placing the DFA Real Estate Securities Fund on watch after its recent addition to the lineup.

Nut graf: The consultant’s quarterly report covered macroeconomic trends, fund-level performance, fees and governance. The committee voted unanimously to accept the consultant’s recommendation to place the newly added DFA real estate fund on watch and to proceed with a search process for the international value allocation.

Vincent summarized the market backdrop and portfolio performance. He said U.S. GDP contracted slightly in the first quarter, unemployment ticked up though it remained below historical recession thresholds and inflation has moderated from 2022 peaks. He noted international stock markets outperformed U.S. indices year-to-date amid currency moves and trade-policy developments.

At the fund level, Vincent pointed to three items of concern: MFS Mid Cap Growth, which is on watch but showing strong long-term returns; the DFA real estate fund, which was added Jan. 10 and is now being placed on watch pending longer-term data; and Vanguard International Value, whose recent “style drift” toward growth sectors and persistent underperformance prompted a recommendation to begin a replacement search.

The consultant also reviewed fees and administrative-account balances. He reported the plan’s all-in administrative fee (including investment costs, administrative expenses and Nationwide’s revenue requirement) is about 5.75 basis points and that the plan’s administrative account has grown to just under $300,000. He reminded the committee that IRS guidance limits use of such funds to participant-benefiting plan expenses.

Committee members asked for further context on the underperforming international fund’s returns and for additional reporting that would show equity percentage equivalents for common allocation models (for example, 80/20, 60/40) on the plan’s comparison pages. Several members suggested additional participant education and marketing options to improve retention.

Formal action: Fonseca moved to approve the consultant’s recommendation and report; a second was received and the motion carried unanimously. The committee also approved an updated Investment Policy Statement, with minor housekeeping edits requested during discussion. Vincent said the consultant will bring potential replacement candidates for Vanguard International Value to the next quarterly meeting.

Ending: The committee directed staff and the consultant to prepare a replacement-search document for Vanguard International Value and to return with additional IPS housekeeping edits as requested.