A friend of mine at work got into the I fund (based on the Morgan Stanley Capital International EAFE) at the right time and rode it to some great profits. He said that as oil prices rose so did the I fund. Being a curious fellow I decided to take a look and an interesting pattern appeared.
I graphed the five funds available in the Thrift Savings Plan, 401k retirement plan.
The funds are:
The C Fund is based on the S&P 500
The F Fund is designed to match the bonds in the Lehman Brothers U.S. Aggregate (LBA) index.
The G Fund invests in short-term U.S. treasuries
The S Fund follows the Wilshire 4500 index
The I Fund follows the EAFE index
I chose the start date of this graph as 5/1/2005. I chose this date for a reason. This was the start of the great price increase in oil last year. During this period, the C fund (based on the S&P 500) had a slow and steady rise. The S fund (based on the Wilshire 4500 index) had a greater rise but it was the I fund which almost seems to be in lock step with oil prices. When the price of NYMEX Light Sweet Crude rose, the I fund rose. When the price of NYMEX Light Sweet Crude fell, the I fund fell. There was not an exact percentage by percentage match but the pattern was unmistakable.
We know that the I fund, which is based on the Morgan Stanley Capital International EAFE does hold a portion of its assets in foreign oil companies including BP and Royal Dutch Petroleum. Could this explain the seeming link? Not in it’s entirely as there is too much not in oil to explain. Could it be that rising oil prices are seen as bad for the US and investments are following suit outside of the US? Perhaps but even so, the C and S fund did rise as well, though there is certainly oil money in there as well. Crude Oil Brokers website.
I am prone to lay low on stocks during the summer through Mid October but an active hurricane season threatening our domestic oil fields and refineries in the Gulf of Mexico combined with the ever present risk of unpleasantness in the Middle East, might just have me ready to hit the button on an allocation back into the I fund at a moments notice.