S Fund Drops in April and I Fund Finishes On Top for Month

The I fund finished ahead of other TSP funds in April. All funds were up with the exception of the S fund.

In April, the S&P 500 rose 0.3%, leaving  it 6.95 points short of its record hit on April 2.

The C Fund, which is based on the S&P 500 index, is up 2.59% for the year. The C fund is up 20.53% for the past twelve months.

The only TSP fund that lost ground in April was the S fund (-2.47%) which is still up 0.17% for the year. The S fund still leads all TSP funds over the last twelve months as it is  up 21.75%.

The I fund performed better than any other TSP fund in April and it is also up 2.28% for the year.

Here is how all of the TSP funds fared in April, for the year-to-date and for the past twelve months.

G Fund F Fund C Fund S Fund I Fund
Month 0.20% 0.90% 0.75% -2.47% 1.51%
YTD 0.78% 2.98% 2.59% 0.17% 2.28%
12 Month 2.17% 0.21% 20.53% 21.75% 13.68%
L Income L 2020 L 2030 L 2040 L 2050
Month 0.31% 0.39% 0.37% 0.32% 0.32%
YTD 1.23% 1.69% 1.85% 1.94% 2.03%
12 Month 5.34% 10.62% 13.00% 14.70% 16.33%

Stocks have struggled so far in 2014. The S&P 500 is up 1.9% this year after posting a 30% rise in 2013. The Dow industrials have risen less than 0.1% in 2014. Underlying the sluggish stock market, U.S. economic growth nearly stalled in the first three months of 2014. The economic expansion that began almost five years ago remains the weakest in modern U.S. history. On the other hand, the stock market has hit new highs in recent days and the price to earnings ratio for most companies is still higher than a 10 year average but substantially below some previous occasions before the stock market fell significantly.

No doubt, the reasons for the slow recovery are complex. The harsh winter weather has impacted profits for some companies in areas with the most severe weather. There is confusion about how the Affordable Care Act will impact companies and many small businesses are reportedly not hiring, hiring workers for less than 30 hours per week, or not expanding business as they normally would, at least until the confusion about the overall cost of the massive health changes become more clear.

There has also been a spike in American companies moving companies out of the United States to overseas locations. Many of these companies have moved to the Netherlands or Ireland and, presumably, they think they will be able to compete in the world marketplace more effectively by paying a lower tax rate. These transactions require U.S. companies moving overseas to transfer at least 20% of their shares to foreign ownership. The U.S. has a combined state-federal corporate income tax rate of about 40%. It is 21% in the United Kingdom and is also much lower in Ireland (12.5%) and most other foreign countries than in the U.S. The American corporate tax system is also unique in that it requires companies to pay the high U.S. corporate tax rate when money earned overseas is brought in to this country. The result is that money often stays overseas and is reinvested outside of the United States instead of companies expanding here.

At the same time though, there are positive trends. U.S. manufacturing has been growing, rising 0.5% in March and 1.5% in February. Also, eBay has announced it is willing to pay $3 billion more in U.S. taxes in order to bring back into the United States the $9 billion or so in cash it is holding in overseas subsidiaries. The company is apparently convinced American companies are still creating innovative technologies among the best in the world and it would rather invest $6 billion here, possibly acquiring other companies, than $9 billion outside of the United States.

The weak economic reading released this week came as Federal Reserve officials are still withdrawing their support for the economy based on the expectation that economic growth will rebound. “Economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions,” the central bank said in a policy statement issued on April 30.

As evidenced by the drop in prices for the S fund, investors have been putting more into companies that are seen as being more secure—larger companies that pay dividends such as many of those in the C fund. That may be because investors are more cautious this year following a large gain in stock prices in 2013 (see the annual TSP Fund returns).

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47