Rudy Fichtenbaum: STRS OH v VFINX Part 2

 STRS OH v VFINX Part 2

By

Dr. Rudy Fichtenbaum

April 28, 2022

VFINX is the Vanguard S & P 500 Index Fund for Investors. The following data come from https://finance.yahoo.com/quote/VFINX/history?p=VFINX and STRS Returns from various Annual Comprehensive Financial Reports (ACFR) some of which can be found on STRS’s website https://www.strsoh.org/publications/annual-reports.html where in the interest of transparency they have the most recent 5-years of reports that are locked so you cannot copy and paste numbers from the report into a spreadsheet. They can also be found at ORSC https://www.orsc.org/reports/search?6&pageSize=10&start=1... where the reports are also locked or on the Auditor’s website where they are unlocked allowing you to cut and paste numbers and put them in a spreadsheet.   https://ohioauditor.gov/auditsearch/Search.aspx Type State Teachers Retirement System into the search box. You will have to do a little hunting, but the reports are there.

I took the quarterly data for VFINX and took the last two quarters and put them together with the first two quarters of the following year to create data that is consistent with STRS’s fiscal year which runs from July 1 though June 30. I am willing to share my spreadsheet if you want to check my numbers or see how I made my graphs.

In this post I show the impact of picking various starting points on comparing the rate of return for STRS OH and the VFINX. I am going to present two graphs.

The first shows 24 10-year rolling periods i.e., each of the bars in the graph represent 10-year average returns for both VFINX and STRS OH. In 24 10-year rolling periods from FY1989-FY1998 to FY2012-FY2021, VFINX beat STRS 16 of the 24-year rolling 10-year periods. All the 10-year rolling periods when STRS beat VFINX were between FY1998-FY07 and FY2005-FY14 reflecting the .COM bust and the GFC.

The second graph shows returns for VFINX v STRS OH for 33 years (FY1989-FY2021), 23 years (FY1999-FY2021), and 13 years (FY2009-FY2021) respectively. You can see that VFINX outperforms STRS OH in all three periods. So, for the entire 33-year period (FY1989-FY2021) VFINX outperforms STRS OH with an average annual return of 11.16% compared to STRS OH which earned an average annual return of 8.33%.

In the 23-year period (FY1999-FY2021),VFINX outperforms STRS OH with an average annual return of 8.87% compared to 7.41% for STRS OH. This clearly shows the impact of starting your analysis just before the .COM bust and the GFC.

Finally, in the 13-year period (FY2009-FY2021) again VFINX outperforms STRS OH with an average annual return of 11.94% compared to 8.18% for STRS OH.

I believe the best way to look at this data is for the period from FY1989-FY2021 because it is the longest period of performance available and it shows that over a long period of time, which encompasses the two of the most significant bear markets (in terms of % declines in the S & P 500) from 1956-2021.

Finally, in presenting this data I want to be clear that I am not advocating that STRS invest all its funds in an S & P 500 index fund. I am simply addressing the issue raised by Mr. Neville in his presentation at the April 21stmeeting. STRS needs to have a diversified portfolio. In a subsequent post, I will compare the performance of STRS OH to a diversified portfolio using index funds.

Dr. Rudy Fichtenbaum is Professor Emeritus of Economics at Wright State University and an elected member of the STRS Board since September 1, 2021.