Federal Retirement Thrift 

Investment Board

Thrift Savings Plan │ Benchmark Study

November 2023
Federal Retirement Thrift Investment Board

Proprietary & Confidential

Contents

Executive Summary..................................................................................................................................3

C Fund and S Fund ...................................................................................................................................6

F Fund .....................................................................................................................................................24

I Fund ......................................................................................................................................................35

Appendix.................................................................................................................................................70
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Executive Summary

The Federal Thrift Savings Plan (TSP) requested Aon Investments USA, Inc. (“Aon”) review and evaluate the 

appropriate indices to use for the following investment options:

• Common Stock Index Investment Fund (C Fund)

• Small Capitalization Stock Index Investment Fund (S Fund)

• Fixed Income Index Investment Fund (F Fund)

• International Stock Index Investment Fund (I Fund)

As part of our analysis, we reviewed multiple indices/benchmarks for each investment option, the construction 

methodology and opportunity set covered by each, the investability and liquidity of the indices, acceptance of the 

indices by the investment community, the appropriateness of the indices for the TSP, and the estimated costs 

associated with making a change. We believe the above factors are the most relevant to consider when choosing a 

benchmark.

Based on our review, we have the following recommendations:

C Fund and S Fund

Maintain the S&P 500 Index for the C Fund and the Dow Jones U.S. Completion Total Stock Market Index for the 

S Fund

Our recommendation is based on the following primary reasons:

• The combination of the S&P 500 Index with the Dow Jones U.S. Completion Total Stock Market Index provides 

complete U.S. equity market coverage.

• The stocks in the S&P 500 Index and the Dow Jones U.S. Completion Total Stock Market Index are liquid and 

trade frequently, allowing index fund managers to hold the majority of the stocks in these indices.

▪ Total passive assets benchmarked to the S&P 500 and Dow Jones U.S. Completion Total Stock Market indices

are about eight times of those benchmarked to the Russell 1000 and Russell 2000 indices.

• The S&P 500 Index has high recognition value among non-investment professionals, which constitute the vast 

majority of the participants.

F Fund

Maintain the Bloomberg U.S. Aggregate Index

We considered the Bloomberg U.S. Universal Bond Index and the FTSE US BIG Bond Index as the main 

alternatives. Our recommendation is based on the following main reasons:
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• The Bloomberg U.S. Aggregate Index provides broad coverage to the investment-grade U.S. fixed income 

market and is the most widely recognized fixed income benchmark in the U.S.

• The Bloomberg U.S. Universal Index provides broader coverage to an investor; however, it includes high yield 

debt, which is more correlated to stocks, reducing the diversification benefit relative to the Bloomberg U.S. 

Aggregate.

• The Bloomberg U.S. Universal Index and the FTSE US BIG Bond Index have not received material traction in 

the institutional marketplace. None of the major index fund managers currently manage any passive assets to 

these benchmarks.

I Fund

Consider broadening the opportunity set of the I Fund by replacing the MSCI EAFE Index with an index that 

includes coverage of Canada, international small caps, and emerging markets.

Our recommendation is based on the following reasons:

• The MSCI ACWI ex USA IMI and the MSCI ACWI IMI ex USA ex China ex Hong Index both provide broad 

coverage of the international equity markets (99% and 90%, respectively).

• The MSCI indices remain the most popular indices for U.S. based institutional investors investing in overseas 

equity markets.

• The transition costs associated with the change in the I Fund benchmark are reasonable. 

• Market Exposure:

○ Canada is the fourth-largest equity market in the world, representing 7.5% of the developed non-U.S. 

equity opportunity set.

○ Emerging Markets represents 27.8% of the international non-U.S. equity investable universe. 

○ International small cap equities represent 13.7% of the international non-U.S. equity investable universe

• Liquidity:

○ We believe the inclusion of emerging markets and international small cap equities in the I Fund would not 

hinder the ability to meet the TSP’s daily liquidity needs. 

○ Overall, liquidity is managed through the use of the I Fund’s cash buffer and other tools such as 

optimization and derivatives. 

○ Additionally, historical daily cash flow assessment scaled to 28% illustrates cash flow activity was at 

reasonable levels to be traded in emerging markets without adversely impacting the prices of securities.

• Securities Lending:

○ The MSCI ACWI ex USA IMI and MSCI ACWI IMI ex USA ex China ex Hong Kong Index generated the 

highest expected yield and percentage out on loan.

○ Across each of the last three calendar years, the income to the TSP is estimated to have been at least 1.9x 

more if the I Fund tracked MSCI ACWI ex USA IMI or MSCI ACWI IMI ex USA ex China ex Hong Kong Index 

instead of the MSCI EAFE index.
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• Administrative and Other Operational Complexities: 

○ Overall, operational complexity has increased when investing in emerging markets in recent years given a 

range of events such as investment restrictions on sensitive Chinese technology sectors, delisting of 

Chinese companies, and sanctions on Russian securities due to the Russia-Ukraine conflict. 

○ These types of unforeseen events can incur transaction costs and may cause performance and volatility 

swings. For example, the announcement of investment restrictions can cause the value of a stock to 

decline at a time where the investor is forced to sell. Additionally, even if the investment restriction is on a 

set of securities or sectors, the negative sentiment generally has a broader impact on the performance of 

the country for a certain period of time. Given the asset size of the I Fund, the forced selling of restricted 

investments could incur higher than average market impact costs due to liquidity challenges.

○ Tensions between the U.S. and China have been building, with the latest developments being the 

technology investment restrictions and export ban of US technology to China. If the current investment 

restrictions on China are the beginning of further restrictions spanning China and Hong Kong investments, 

this level of uncertainty can outweigh the benefits of expanding the I Fund to include China and retaining 

exposure to Hong Kong, based on the TSP’s specific circumstances. 

• Conclusion

○ Expanding the opportunity set of the I Fund to the MSCI ACWI IMI ex USA ex China ex Hong Kong Index

would be viewed as a more efficient portfolio than the MSCI EAFE Index, benefiting from its broader 

opportunity set across the number of securities, market cap, and countries. 

– The index has performed favorably over the short- and long-term periods relative to the MSCI EAFE

Index with favorable risk-adjusted returns over-the long-term.

– The market cap coverage increases from 55% to 90% by replacing the MSCI EAFE Index with the 

MSCI ACWI IMI ex USA ex China ex Hong Kong Index.

○ We recommend the TSP broaden the opportunity set of the I Fund by replacing the MSCI EAFE Index with 

the MSCI ACWI IMI ex USA ex China ex Hong Kong Index, taking into consideration the TSP’s unique 

circumstances. We recommend future reviews reassess the TSP’s unique circumstances to determine 

whether further expansion of the benchmark is warranted, considering how administrative and operational 

complexities evolve over time.
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C Fund and S Fund

We have reviewed the legislative guidelines related to the investment objectives for the Common Stock Index 

Investment Fund (C Fund) and the Small Capitalization Stock Index Investment Fund (S Fund) and have compared 

each of these Funds’ existing benchmarks to several reasonable alternatives. We find that the existing 

benchmarks, the S&P 500 Index for the C Fund and the Dow Jones U.S. Completion Total Stock Market Index for 

the S Fund, are appropriate.

We therefore recommend no change in the benchmarks for the C and S Funds.

Legislative Guidelines

The goal or objective of any investment option or portfolio plays an important role in determining the appropriate 

benchmark for that investment. The Federal Employees Retirement System Act of 1986 (FERSA), as amended,

states the following regarding the C Fund and the S Fund, under section 8438 (b):

C Fund

(2) (A) The Board shall select an index which is a commonly recognized index comprised of common stock the 

aggregate market value of which is a reasonably complete representation of the United States equity 

markets.

(B) The Common Stock Index Investment Fund shall be invested in a portfolio designed to replicate the 

performance of the index selected under subparagraph (A). The portfolio shall be designed such that, to 

the extent practicable, the percentage of the Common Stock Index Investment Fund that is invested in 

each stock is the same as the percentage determined by dividing the aggregate market value of all shares 

of that stock by the aggregate market value of all shares of all stocks included in such index.

S Fund

(3) (A) The Board shall select an index which is a commonly recognized index comprised of common stock the 

aggregate market value of which represents the United States equity markets excluding the common 

stocks included in the Common Stock Index Investment Fund.

(B) The Small Capitalization Stock Index Investment Fund shall be invested in a portfolio designed to replicate 

the performance of the index in subparagraph (A). The portfolio shall be designed such that, to the extent 

practicable, the percentage of the Small Capitalization Stock Index Investment Fund that is invested in 

each stock is the same as the percentage determined by dividing the aggregate market value of all shares 

of that stock by the aggregate market value of all shares of all stocks included in such index.
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The C Fund is benchmarked against the S&P 500 Index, which provides coverage of the large capitalization 

segment of the U.S. equity market. The FERSA guidelines for the C Fund do not specify that it should be 

benchmarked to a large capitalization U.S. stock index. If the C Fund were the only U.S. equity investment option 

available to TSP participants, it would have made sense to consider a broader, more inclusive benchmark that also 

includes smaller capitalization stocks, such as the Russell 3000 Index or the Dow Jones U.S. Total Market Index. 

We recognize, however, that the S Fund is meant to complement the C Fund, not to compete or overlap with it. This 

clearly implies that the C Fund should be benchmarked to a large capitalization U.S. index. 

C Fund

We began our review by first compiling a list of broad U.S. equity benchmarks for consideration for the C Fund:

• CRSP U.S. Large Cap Index (The top 85% of the U.S. equity investable market capitalization)

• CRSP U.S. Total Market Index (Broad U.S. equity universe across mega, large, mid, small, and micro 

capitalizations)

• Dow Jones (DJ) U.S. Broad Stock Market Index (All stocks in DJ U.S. Total Stock Market Index, excluding 

those defined as micro-caps)

• DJ U.S. Large-Cap Total Stock Market Index (The largest ~750 stocks in DJ U.S. Total Stock Market Index Set)

• DJ U.S. Total Stock Market Index (Including all U.S. equity issues with readily available prices) 

• MSCI USA All Cap Index (Broad U.S. equity universe coverage across large, mid, small, and micro 

capitalizations)

• MSCI USA Index (Captures the large and mid-capitalizations of U.S. equity universe)

• MSCI USA Investable Market Index (IMI) (Captures the large, mid, and small capitalizations of U.S. equity 

universe)

• Russell 1000 Index (The largest ~1,000 stocks in Russell 3000 Index)

• Russell 3000 Index (The largest ~3,000 U.S. companies)

• Standard & Poor’s (S&P) 500 Index (500 leading U.S. companies covering ~85% of available market 

capitalization, provides large capitalization coverage as a component of the S&P Completion 1500 Index –

Current Benchmark)

• S&P Composite 1500 Index (The combination of S&P 500, S&P MidCap 400 and S&P SmallCap 600 Indices

covering 90% of U.S. market capitalization)

As the C and S Funds are complementary, and in combination should represent the broad U.S. equity market, we 

have excluded the broad-based all cap indices from consideration, such as the CRSP U.S. Total Market, DJ U.S. 

Broad Stock Market, DJ U.S. Total Stock Market, MSCI USA All Cap, MSCI USA IMI, Russell 3000, and S&P 

Composite 1500 indices.

Of the remaining indices focusing on large to mid capitalization stocks, the three major index providers MSCI, 

FTSE/Russell, and S&P/DJ provide benchmarks that track both the U.S. large and small cap markets. Table 1 lists

the benchmarks that were considered further in the benchmark evaluation process.
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Table 1: Benchmark Comparative Summary (As of 6/30/2023) 

Source: CRSP, MSCI, S&P DJ Indices, FTSE Russell, FactSet, BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Note: Market coverage ratios are based on the index providers broadest investable U.S. equity index within their suite of indices. Assets shown in AUM column include total passive assets 

provided by BlackRock, which are as of 3/31/2023. Assets of other providers are as of 6/30/2023.

1 Float-adjusted

MSCI indices available for the U.S. equity market are constructed using a building block approach for large and small cap segments that, in 

combination, represent 99% of the U.S. market. We like the simplicity of MSCI’s building block approach, however, the major drawback is that 

MSCI’s U.S. indices have not been very popular among institutional investors. 

Alternatively, FTSE/Russell’s and S&P/DJ’s U.S. indices are very popular, with the Russell 1000 Index and the S&P 500 Index being the most 

popular large cap index options used by institutional investors. 
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Finally, as for the Center for Research in Security Prices (“CRSP”) indices, Vanguard is the only investment 

management firm out of the five major index fund providers in the U.S. that has assets benchmarked to CRSP’s 

U.S. indices. While there are meaningful assets benchmarked to several of their indices (more within other asset 

classes such as all cap and small cap), competitive bidding would not be feasible if a CRSP index is recommended 

as the benchmark for the C Fund, a significant consideration given the size of the TSP. 

We have therefore focused our analysis on the following benchmarks:

• S&P 500 Index 

• Russell 1000 Index

Table 2: Benchmark Comparison (As of 6/30/2023)

S&P 500 Index Russell 1000 Index

Inclusion criteria Comprised of the largest 500 U.S. 

companies. Selected from the S&P Total 

Market Index according to market cap and 

other criteria such as profitability and 

liquidity.

Approximately largest 1,000 stocks based 

on a combination of their market cap and 

current index membership

# of securities 503 1,008

Market cap

1 $39.1 Trillion $41.1 Trillion

Largest company’s market cap $3.1 Trillion $3.1 Trillion

Smallest company’s market cap $3.6 Billion $0.9 Billion

Coverage of U.S. stocks 85% 94%

Reconstitution frequency Annual Annual

Turnover 4.5% 5.8%

Source: S&P DJ Indices, FTSE Russell, FactSet

1Float-adjusted

The Russell 1000 index is a market capitalization weighted index. U.S. stocks are ranked from highest to lowest 

capitalizations, and the largest 1,000 stocks are included in the Russell 1000 Index. Unlike the Russell indices, the 

S&P 500 Index constituents are selected by an Index Committee. When considering eligibility for inclusion in the 

S&P 500 Index, the Index Committee assesses various criteria such as market capitalization, liquidity, whether it is 

listed on certain U.S. stock exchanges, and financial viability. Although the Index Committee’s goal is to represent 

the largest 500 U.S. companies, the subjective nature of the process can lead to differences relative to repeatable, 

rules-based indices, such as the market cap weighted Russell 1000 Index. Although the indices cover different 

opportunity sets, the top 500 holdings in the S&P 500 index can differ from the top 500 holdings in the Russell 

1000 Index, by weight and/or inclusion. Therefore, from a construction methodology point of view, Aon prefers 

rules-based indices like Russell because there is no subjectivity when selecting the constituents. Nevertheless, we 

find the S&P 500 Index as an acceptable benchmark for U.S. large capitalization stocks, as the S&P 500 Index 

provides very close coverage of the largest 500 U.S. stocks. 
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Performance

Chart 1 illustrates how $1 invested in each of the indices over the longest common time period (36 years) would 

have grown over time. As shown, the indices have tended to perform quite similarly over this time period.

Chart 1: Growth of A Dollar (As of 6/30/2023)

(As of 6/30/2023) S&P 500 Index Russell 1000 Index

Value At the End of 36 Years $37.13 $37.85

The correlation coefficients between each pair of indices are shown in Table 3. Correlation coefficients can range 

from +1 to -1. A correlation of +1 between two indices implies that the returns of the two indices move in the same 

direction and in the same proportion, while a correlation of -1 means that the returns move in opposite directions 

but in the same proportion. As can be seen, the indices are highly positively correlated to each other.

Table 3: Correlation Matrix (As of 6/30/2023)

S&P 500 Index Russell 1000 Index

S&P 500 Index 1.00

Russell 1000 Index 1.00 1.00

Note: Longest common time period = 36 years
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Table 4 details the cumulative annualized returns over several trailing historical periods.

Table 4: Return History (%) (As of 6/30/2023)

S&P 500 Index Russell 1000 Index

1 Year 19.6 19.4

3 Years 14.6 14.1

5 Years 12.3 11.9

10 Years 12.9 12.6

15 Years 10.9 10.8

20 Years 10.0 10.1

25 Years 7.6 7.8

30 Years 10.0 10.1

35 Years 10.6 10.7

Note: Please see appendix for annual returns

While returns do vary year to year, long term returns for both indices tend to be fairly consistent. However, the 

numbers above do not indicate the risk incurred to earn these returns. Table 5 shows the annualized standard 

deviation over various time periods. The ten-year standard deviation of the S&P 500 Index of 14.9% means that 

based on the last ten years of historical returns data, the return of the S&P 500 Index in any given year is expected 

to be in a range of +/- 14.9% around the average return, about two-thirds of the time.

Table 5: Annualized Standard Deviation (%) (As of 6/30/2023)

S&P 500 Index Russell 1000 Index

3 Years 18.2 18.4

5 Years 18.8 19.2

10 Years 14.9 15.2

15 Years 16.1 16.5

20 Years 14.7 15.0

25 Years 15.7 15.9

30 Years 15.1 15.3

35 Years 14.8 15.0

The risk, as measured by the standard deviation of returns, also tends to be in a narrow range. The Sharpe ratio 

measures excess return over the risk-free rate (such as T-Bills) per unit of additional risk. Sharpe ratios are 

appropriate for any kind of investment, including indices and managers. The Sharpe ratio can be used to compare 

the risk-adjusted performance of two or more indices, compare the risk-adjusted performance of a manager with an 

index, or compare the risk-adjusted performance of two or more managers. A higher Sharpe ratio is always better. 

A positive Sharpe ratio means that the investment has produced a better return than the risk-free rate over the 

period analyzed. The Sharpe ratios for each of the indices over various periods are shown in Table 6.
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Table 6: Sharpe Ratios (As of 6/30/2023)

S&P 500 Index Russell 1000 Index

5 Years 0.57 0.54

10 Years 0.80 0.77

15 Years 0.63 0.61

20 Years 0.59 0.59

25 Years 0.37 0.37

30 Years 0.51 0.50

35 Years 0.52 0.52

Based on historical performance, we do not find evidence of superiority of one index relative to the other on a riskadjusted basis.

Investability & Liquidity

A good benchmark should be investable, i.e., an investor should be able to earn a return similar to that of the index 

after costs.

The stocks in the S&P 500 Index are liquid and trade frequently, allowing index fund managers to hold all the 

stocks at the appropriate index weights. The existence of an extremely liquid market for S&P 500 futures contracts 

also allows index fund managers to manage cash flows more efficiently, resulting in tighter tracking of the Index.

The Russell 1000 Index is also relatively liquid, allowing index fund managers to replicate the index and control 

tracking error. However, the Russell 1000 Index tends to hold more mid cap stocks, which lowers liquidity, 

potentially at the cost of higher tracking error.

In order to evaluate the U.S. large cap market’s ability to absorb the range of cash flow activity the TSP 

experiences, the following table outlines:

• Large and average daily net cash outflow size from January 2019 to June 2023

• Percentage of the cash flow the market can absorb on market on close (MOC) without exceeding 3% of 

average daily volume

• Estimated explicit cost (commissions + taxes)

• Implicit cost (MOC)

The results shown in Table 7 illustrate that both U.S. large cap markets can absorb 100% of the large and average 

daily net cash flow at the market on close without exceeding 3% of average daily volume. A threshold of 3% ADV 

is the amount that TSP’s managers are generally comfortable trading at or near the close without causing undue 

market impact. Overall, we find the following markets have depth and liquidity to be able to absorb meaningful size 

daily cash flow activity at marginal cost. 
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Table 7: Liquidity Analysis (As of September 2023)

Large Net Cash Flow - $1.5 Billion Average Net Cash Flow - $250 Million

U.S. Large Cap 

Equity Indices

% at MOC 

(3% of ADV)

Explicit Costs 

(Comm + 

Taxes)

Implicit Costs 

(MOC)

% at MOC 

(3% of ADV)

Explicit Costs 

(Comm + 

Taxes)

Implicit Costs 

(MOC)

S&P 500 Index 100% 0.01% 0.00% 100% 0.01% 0.00%

Russell 1000 Index 100% 0.01% 0.00% 100% 0.01% 0.00%

Source: BlackRock

Table 8 compares the historical 5-year tracking errors of institutional index funds managed by BlackRock, Bank of 

New York Mellon (Mellon), Northern Trust, State Street Global Advisors (SSGA), and Vanguard for the S&P 500 

Index and Russell 1000 Index. Tracking error for both indices have been quite similar across the major providers 

over the 5-year time period. 

Table 8: Index Fund 5-Year Tracking Error (As of 6/30/2023)

S&P 500 Index Russell 1000 Index

BlackRock 0.02 0.02

Mellon 0.01 0.02

Northern Trust 0.01 0.02

SSGA 0.02 0.07

Vanguard 0.01 0.02

Source: BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Acceptance

An important consideration for benchmark selection is the benchmark’s acceptance and use among the investment 

community. Table 9 displays the value of passively managed assets in all vehicles benchmarked to both indices by 

the above five index managers.

Table 9: Assets Indexed to Benchmark (As of 6/30/2023)

S&P 500 Index Russell 1000 Index

Total Passive Assets $3 Trillion $257 Billion

Source: BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Note: Total passive assets include assets provided by BlackRock, which are as of March 31, 2023. Remaining data is as of June 30, 2023.

The S&P 500 Index has significantly more assets indexed to it than the Russell 1000 Index. However, across the 

other major U.S. large cap indices, both the S&P 500 Index and the Russell 1000 Index are by far the most popular, 

with the next most popular index, the CRSP U.S. Large Cap Index, having approximately $42B in total passive 

assets benchmarked to it. 
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Summary

Both the S&P 500 Index and the Russell 1000 Index are suitable index options for coverage of the U.S. large cap 

stock market. In addition, both providers have complementary indices for the U.S. small cap segment. When taken 

as a whole, the combined index exposure represents nearly 99% of the U.S. stock market. However, the Russell 

1000 Index is considered slightly less liquid with exposure to mid cap stocks that may increase tracking error. The 

S&P 500 Index is the most widely followed and most liquid U.S. large cap index. 

Both indices will be reviewed in conjunction with a recommendation for the benchmark for the S Fund to determine 

the most suitable combination for the C and S Funds.

S FUND

Benchmarks Considered

We considered the following U.S. equity small/mid capitalization indices in our initial review of benchmarks for the 

S Fund:

• CRSP U.S. Small Cap Index (U.S. companies that fall between the bottom 2%-15% of the investable market 

capitalization)

• DJ U.S. Completion Total Stock Market Index (DJ U.S. Total Stock Market Index excluding components of the 

S&P 500 Index – Current Benchmark)

• DJ U.S. Small-Cap Total Stock Market Index (including the next smallest ~1,750 stocks in DJ U.S. Total Stock 

Market Index ranked by capitalization relative to the DJ U.S. Large-Cap Total Stock Market Index)

• MSCI USA Small Cap Index (Captures the small capitalizations of U.S. equity universe and represents ~14% of 

the free float-adjusted market capitalization)

• Russell 2000 Index (The smallest ~2,000 stocks in Russell 3000 Index)

• Russell Small Cap Completeness Index (The Russell 3000 index constituents excluding components of the 

S&P 500 Index)

• S&P 1000 Index (1000 small and mid-sized U.S. companies, combination of S&P 400 and S&P 600 Indices)

• S&P Completion Index (~3,000 mid, small, and micro capitalization companies, S&P Total Market Index 

excluding S&P 500 Index members) 

• S&P MidCap 400 Index (400 mid-sized U.S. companies covering ~5% of available market capitalization, 

provides mid capitalization coverage as a component of the S&P Completion 1500 Index)

• S&P SmallCap 600 Index (600 small-sized U.S. companies covering ~2% of available market capitalization, 

provides small capitalization coverage as a component of the S&P Completion 1500 Index)

Since we narrowed the C Fund options to the S&P 500 Index and the Russell 1000 Index, the best complementary 

small cap indices would be the S&P Completion Index, the DJ U.S. Completion Total Stock Market (TSM) Index, 

and the Russell Small Cap Completeness Index for the S&P 500 Index, and the Russell 2000 Index for the Russell 

1000 Index. When the S&P 500 Index is combined with the DJ U.S. Completion TSM Index, Russell Small Cap 

Completeness Index, or the S&P Completion Index, the overall exposure is ~100% of the U.S. equity market. The 
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DJ U.S. Completion TSM Index, Russell Small Cap Completeness Index, and the S&P Completion Index are

designed to represent the broad U.S. stock market excluding S&P 500 stocks, so there are no overlapping 

securities. The Russell 1000 Index and Russell 2000 Index together also represent ~99% of the U.S. equity

market. Since Russell utilizes a building block approach, there are also no overlapping securities between these

two indices. Finally, the CRSP U.S. Large Cap Index and CRSP U.S. Small Cap Index are also complementary 

indices and together provide broad representation for the U.S. equity market. 

Given the complementary attributes of the aforementioned indices and the legislative guidelines of the S Fund, we 

eliminated all the other contenders from consideration. Table 10 lists the benchmarks that were considered further 

in the benchmark evaluation process. 
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Table 10: Benchmark Comparative Summary (As of 6/30/2023) 

Source: CRSP, MSCI, S&P DJ Indices, FTSE Russell, FactSet, BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Note: Market coverage ratios are based on the index providers broadest investable U.S. equity index within their suite of indices. Assets shown in AUM column include total passive assets 

provided by BlackRock, which are as of 3/31/2023. Assets of other providers are as of 6/30/2023.

1 Float-adjusted

As shown in Table 10, the DJ U.S. Completion Total Stock Market and CRSP U.S. Small Cap indices are the most popular small cap stock indices 

across the major passive providers, with $120B and $123B of total assets benchmarked to these indices, respectively. Additionally, the Russell 

2000 and S&P Completion Indices are popular options with about $109B and $112B in passive assets benchmarked to these indices. However, as 

noted, both the CRSP U.S. Small Cap Index and the S&P Completion Index are only offered by one of the five major passive providers, making 

competitive bidding unlikely, a significant consideration given the size of the TSP.
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Conversely, although the MSCI USA Small Cap Index is offered by multiple passive providers, it remains an 

unpopular benchmark by other institutional investors with only $3B of passive assets benchmarked to this index. 

Finally, the Russell Small Cap Completeness Index was evaluated. It has gained popularity over time across passive 

providers and institutional investors, however, there are no major compelling differences between the current 

benchmark, the DJ U.S. Completion TSM Index, and this index to justify a change. Both the current benchmark and 

the Russell Small Cap Completeness provide complete coverage of the U.S. equity market when paired with the 

S&P 500 Index. 

We therefore focus our attention on the remaining two benchmarks:

• Russell 2000 Index (as a complement to the Russell 1000 Index)

• DJ U.S. Completion TSM Index (as a complement to the S&P 500 Index)

A comparison between the two benchmarks is shown in Table 11.

Table 11: Benchmark Comparison (As of 6/30/2023)

Russell 2000 Index DJ U.S. Completion TSM Index

Inclusion criteria Small cap segment stocks ranking from 

1,001 to 3,000 based on market cap

All stocks in the DJ U.S. TSM Index minus 

the stocks in the S&P 500 Index

# of securities 2,002 3,686

Market cap1 $2.4 Trillion $7.3 Trillion

Largest company’s market cap $13.1 Billion $87.4 Billion

Smallest company’s market cap $43.6 Million $0.7 Million

Coverage of U.S. stocks 5% 15%

Reconstitution frequency Annual Annual

Turnover 34.1% 29.6%

Source: S&P DJ Indices, FTSE Russell, and FactSet

1Float adjusted

While the Russell 2000 Index provides coverage to only 5% of the U.S. stock market as opposed to 15% provided 

by the DJ U.S. Completion TSM Index, it is more relevant to consider it in combination with the Russell 1000 Index, 

which provides greater market coverage than the S&P 500 Index. As mentioned above, when paired with the 

complementary indices, both index combinations offer 99%-100% coverage of the U.S. equity market. 

Performance

Chart 2 illustrates the growth of $1 invested in each of the indices over the longest common time period. The DJ 

U.S. Completion Total Stock Market Index has performed better than the Russell 2000 Index due to the inclusion of 

more small-cap stocks.
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Chart 2: Growth of A Dollar (As of 6/30/2023)

(As of 6/30/2023) Russell 2000 Index DJ U.S. Completion TSM Index

Value At the End of 37 Years $21.38 $28.24

The correlation between the indices is shown in Table 12. As shown, the correlation between the indices is quite 

high.

Table 12: Correlation Matrix (As of 6/30/2023)

Russell 2000 Index DJ U.S. Completion TSM Index

Russel 2000 Index 1.00

DJ U.S. Completion TSM Index 0.97 1.00

Note: Longest common time period = 37 years

The cumulative annualized returns over several trailing historical periods are shown in Table 13.
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Table 13: Return History (%) (As of 6/30/2023)

Russell 2000 Index DJ U.S. Completion TSM Index 

1 Year 12.3 15.0

3 Years 10.8 9.2

5 Years 4.2 6.0

10 Years 8.3 9.2

15 Years 8.4 9.1

20 Years 8.9 9.9

25 Years 7.3 7.8

30 Years 8.7 9.4

35 Years 9.0 9.9

Note: Please see appendix for annual returns

Given the substantial differences in market coverage between the two indices, annual returns tend to differ by 

relatively large margins. The difference in returns generally narrows over longer periods of time but is still higher 

than that of large capitalization indices.

The standard deviation of these benchmarks is shown in Table 14.

Table 14: Annualized Standard Deviation (%) (As of 6/30/2023)

Russell 2000 Index DJ U.S. Completion TSM Index 

3 Years 21.9 22.2

5 Years 24.0 24.1

10 Years 19.6 19.0

15 Years 21.1 20.2

20 Years 19.6 18.5

25 Years 20.7 20.3

30 Years 19.6 19.2

35 Years 19.2 18.5

The DJ U.S. Completion TSM Index has outperformed over all historical periods at a similar-to-lower risk level, 

particularly over longer time periods. The DJ U.S. Completion TSM Index has a higher Sharpe ratio over all time

periods analyzed.
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Table 15: Sharpe Ratios (As of 6/30/2023)

Russell 2000 Index DJ U.S. Completion TSM Index 

5 Years 0.11 0.18

10 Years 0.37 0.43

15 Years 0.36 0.41

20 Years 0.39 0.46

25 Years 0.26 0.29

30 Years 0.32 0.37

35 Years 0.32 0.38

Over the longest common time period, the DJ U.S. Completion TSM Index has outperformed the Russell 2000 

Index on a risk-adjusted basis. However, in combination with the corresponding large capitalization indices, these 

differences are diminished.

Investability & Liquidity

Most of the significant players in the index fund management business offer Russell 2000 Index funds and DJ U.S. 

Completion TSM Index funds. Managers for the DJ U.S. Completion Total Stock Market Index funds typically hold 

all the mid cap stocks, as well as most of the small cap stocks, and optimize the balance of the micro cap segment. 

Again, they have shown an ability to do this at reasonable costs and tracking error. Fund managers tend to hold all 

the stocks in the Russell 2000 Index as part of their investment strategy. 

In order to evaluate the U.S. small-mid cap market’s ability to absorb the range of cash flow activity the TSP 

experiences, the following table outlines:

• Large and average daily net cash outflow size from January 2019 to June 2022

• Percentage of the cash flow the market can absorb on market on close (MOC) without exceeding 3% of 

average daily volume

• Estimated explicit cost (commissions + taxes)

• Implicit cost (MOC)

The results shown in Table 16 illustrate that the candidate indices can absorb more than 70% of the large net daily 

cash flow and 100% of the average daily net cash flow at the market on close without exceeding 3% of average 

daily volume. A threshold of 3% ADV is the amount that TSP’s managers are generally comfortable trading at or 

near the close without causing undue market impact. For a large net daily cash flow, if 100% of the trade is not

executed on market on close, the trade can be executed through derivatives in a low-cost manner. Overall, we find 

the following markets have depth and liquidity to be able to absorb meaningful size daily cash flow activity at 

marginal cost. 
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Table 16: Liquidity Analysis (As of September 2023)

Large Net Cash Flow - $700 million Average Net Cash Flow - $120 Million

U.S. Small-Mid Cap 

Equity Indices

% at MOC 

(3% of ADV)

Explicit Costs 

(Comm + 

Taxes)

Implicit Costs 

(MOC)

% at MOC 

(3% of ADV)

Explicit Costs 

(Comm + 

Taxes)

Implicit Costs 

(MOC)

DJ U.S. Completion TSM 

Index

86% 0.01% 0.03% 100% 0.01% 0.00%

Russell 2000 Index 70% 0.02% 0.06% 100% 0.02% 0.00%

Source: BlackRock

Table 17 compares the historical tracking errors of institutional index funds managed by BlackRock, Mellon, 

Northern Trust, SSGA, and Vanguard (however, Vanguard does not manage stand-alone index funds benchmarked 

to DJ U.S. Completion TSM Index). All managers have been successful in earning the returns of the indices within a 

reasonable level of tracking error.

Table 17: Index Fund 5-Year Tracking Error (%) (As of 6/30/2023)

Russell 2000 Index DJ U.S. Completion TSM Index 

BlackRock 0.06 0.11

Mellon 0.04 0.15

Northern Trust 0.03 0.10

SSGA 0.08 0.10

Vanguard 0.03 N/A1

Source: BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

1Vanguard does not currently offer any products benchmarked to the DJ U.S. Completion TSM Index

Acceptance

An important consideration for benchmark selection is the benchmark’s acceptance and use among the investment 

community. Table 18 displays the value of passively managed assets by the above leading fund managers and 

benchmarked to each of the two indices.

Table 18: Assets Indexed to Benchmark (As of 6/30/2023)

Russell 2000 Index DJ U.S. Completion TSM Index 

Total Passive Assets $109 Billion $120 Billion

Source: BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Note: Total passive assets include assets provided by BlackRock, which are as of March 31, 2023. Remaining data is as of June 30, 2023. 

Both indices are acceptable passive benchmarks. The assets managed by the above fund managers account for 

only a portion of the total passive assets benchmarked to the two indices. If other fund families and assets that are 
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Aon Investments USA, Inc. 22

part of other mandates are included, the total assets managed to these benchmarks are much larger. For example, 

the Russell 2000 Index fund could be managed on a stand-alone basis or within the mandate of a Russell 3000 

index fund, which has a much larger asset base ($151B of total passive assets). The same holds true for the DJ U.S. 

Completion TSM Index being managed alone or within the DJ U.S. Total Stock Market Index. 

There is also a fairly large level of overlap that exists between the different small capitalization indices at the 

underlying security level. Given the large overlap in securities between the indices, providers hold and trade most 

of the same securities that are held in the DJ U.S. Completion TSM Index as part of their other small capitalization 

index strategies. As a result, we believe it is appropriate to consider assets managed to indices such as the S&P 

Completion Index and CRSP U.S. Small Cap Index by the five major providers, in addition to the Russell 2000 Index 

and the DJ U.S. Completion TSM Index, when assessing the size of total passive assets benchmarked to the indices 

discussed above.

Table 19: Assets Indexed to Additional Benchmarks (As of 6/30/2023)

Russell 2000

Index

DJ U.S. Completion 

TSM Index

S&P Completion 

Index

CRSP U.S. 

Small Cap Index

Total U.S. Small 

Capitalization Stock 

Indexed1

Total Passive Assets $109 Billion $120 Billion $112 Billion $123 Billion $605 Billion

Source: BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Note: Total passive assets include assets provided by BlackRock, which are as of March 31, 2023. Remaining data is as of June 30, 2023. 

1Additional indices included in the total asset number are the following: Russell 2500 Index, Russell Small Cap Completeness Index, and S&P 

SmallCap 600 Equity Index

When looking at total passive assets benchmarked to these indices, the CRSP U.S. Small Cap Index leads the way

despite being offered by only one of the major passive providers. However, the DJ U.S. Completion TSM Index is a 

close second with only $3B less benchmarked to this index. Further, four out of the five major providers utilize this 

benchmark, making the opportunity for competitive pricing much more feasible. 
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Benchmark Recommendation for the C and S Funds

There are two combinations of benchmarks that make the most sense for the C and S Funds:

1. The current combination of the S&P 500 Index for the C Fund and the DJ U.S. Completion TSM Index for the S 

Fund; or

2. An alternate combination of the Russell 1000 Index for the C Fund and the Russell 2000 Index for the S Fund

Either of these combinations would be consistent with the FERSA provisions. However, given there are no material 

benefits associated with moving away from the current indices, we recommend that the existing benchmarks be 

maintained for the C and S Funds. The following considerations support this recommendation:

• The combination of the S&P 500 Index with the DJ U.S. Completion Total Stock Market Index provides 

complete U.S. equity market coverage.

• The S&P 500 Index has high recognition value among non-investment professionals, a label that describes the 

vast majority of TSP participants.

• Total passive assets benchmarked to the S&P 500 and DJ U.S. Completion Total Stock Market indices are 

about eight times of those benchmarked to the Russell 1000 and Russell 2000 indices.

• The stocks in the S&P 500 Index and the DJ U.S. Completion Total Stock Market Index are liquid and trade 

frequently, allowing index fund managers to hold the majority of the stocks in these indices.

• The costs associated with picking up the smaller end of the market capitalization spectrum have not impacted 

index fund managers’ ability to track the DJ U.S. Completion Total Stock Market Index and have provided a 

broader opportunity set.
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F Fund

Summary

We have reviewed the Fixed Income Index Investment Fund’s (F Fund) legislative guidelines and compared its 

current benchmark the Bloomberg U.S. Aggregate Index to other leading fixed income market indices. We 

recommend the continued use of the Bloomberg U.S. Aggregate Index for the F Fund.

Legislative Guidelines

FERSA states the following as it relates to the F Fund:

(B) The Board shall establish a Fixed Income Investment Fund under which sums in the Thrift Savings Fund are 

invested in—

I. insurance contracts

II. certificate of deposits; or

III. other instruments or obligations selected by qualified professional asset managers, which return the 

amount invested and pay interest, at a specified rate or rates, on that amount during a specified period 

of time.

The guidelines for the eligible instruments in which the F Fund may invest are very general in nature. There is no 

guidance on whether investments may be made in non-U.S. dollar denominated debt, non-investment grade loans, 

U.S. dollar-denominated foreign debt, etc. 

The legislative guidelines specify that the F Fund may invest in insurance contracts and certificates of deposits. We 

note that the relative stability in returns provided by insurance contracts and certificates of deposit is already 

available to participants through the Government Securities Investment Fund (G Fund). Insurance contracts and 

certificates of deposit are not included in marketable security fixed income benchmarks. As participants have 

access to an investment option in the G Fund that provides the key elements of insurance contracts and 

certificates of deposit – return of capital and payment of interest – we believe that it is appropriate to offer 

participants exposure to a broad array of marketable fixed income securities as the F Fund currently provides. 

Therefore, we focus our attention on the leading broad-based fixed income indices that comprise publicly traded 

fixed income securities.

Benchmarks Considered

We initially considered the following indices in our review of reasonable benchmarks for the F Fund:

• Bloomberg Global Aggregate Index (Represents a broad-based measure of the global investment-grade fixed 

income market, including the three major components the U.S. Aggregate, the Pan-European Aggregate, and 

the Asian-Pacific Aggregate Indices. The index also includes Eurodollar and Euro-Yen corporate bonds, 

Canadian government, agency and corporate securities, and USD investment grade 144A securities)
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• Bloomberg U.S. Aggregate Index – (An index representing the U.S. investment grade fixed rate bond market, 

with index components for government and corporate securities, mortgage pass-through securities, and assetbacked securities - Current Benchmark)

• Bloomberg U.S. Universal Index (An index composed of the U.S. Aggregate Index, the U.S. High-Yield 

Corporate Index, the 144A Index, the Eurodollar Index, the Emerging Markets Index, and the non-ERISA 

portion of the CMBS Index)

• FTSE US Broad Investment-Grade (BIG) Bond Index (An index designed to track the performance of US dollardenominated bonds issued in the US investment-grade bond market, includes US Treasury, government 

sponsored, collateralized, and corporate debt)

• FTSE World Broad Investment-Grade (BIG) Bond Index (A multi-asset, multi-currency index designed to

provide a broad-based measure of the global fixed income markets, includes investment-grade government, 

government-sponsored/supranational, collateralized, and corporate debt)

• FTSE World Government Bond Index (A broad index designed to provide exposure to the global sovereign 

fixed income market, the index measures the performance of fixed-rate, local currency, investment-grade 

sovereign bonds, includes sovereign debt from over 20 countries, denominated in a variety of currencies)

The FTSE World Government Bond Index was eliminated from further consideration since the opportunity set is 

limited to government issued bonds. Table 20 lists the benchmarks that were considered further in the benchmark 

evaluation process. 
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Table 20: Benchmark Comparative Summary (As of 6/30/2023) 

Source: Bloomberg, FTSE Russell, BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Note: Market coverage ratios are based on the index providers broadest investable U.S and global fixed income indices within their suite of indices. Assets shown in AUM column include 

total passive assets provided by BlackRock, which are as of 3/31/2023. Assets of other providers are as of 6/30/2023.
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Chart 3 provides a representation of the global investable fixed income market. The Bloomberg U.S. Aggregate 

Index, the most widely used benchmark by U.S. institutional investors, is broken out as a sub-component of the 

global fixed income markets.

Chart 3: Global Fixed Income Opportunity Set ($64.8 T As of 6/30/2023) 

Source: Bloomberg, Multi-Verse Universe

*Other is comprised of Euro Treasury High Yield and EM Local Currency Govt: Non GLA Eligible

The fixed income portion of an investor’s portfolio typically functions as a risk-reducer, providing stable returns and 

predictable income with low correlations to equities (e.g., C, S, and I Funds). Even though global bond indices such 

as the Bloomberg Global Aggregate Index and the FTSE World BIG Bond Index have the broadest bond market 

coverage globally, they contain significant foreign currency exposure, which adds volatility. Foreign currency risk 

tends to be the largest contributor to volatility for unhedged global bond portfolios. For this reason, we eliminated 

the Bloomberg Global Aggregate Index and the FTSE World BIG Bond Index from further consideration.
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Table 21: Benchmark Comparison (As of 6/30/2023) 

Bloomberg U.S. Aggregate

Index

Bloomberg U.S. Universal

Index FTSE US BIG Bond Index

Inclusion criteria Includes U.S. Investment 

grade, dollar denominated, 

non-convertible, fixed-rate 

instruments. Maturity must be

greater than one year.

Includes Treasuries, Agencies, 

mortgages, asset-backed 

securities, and corporate debt. 

Minimum outstanding size is 

$250 million. 

Inclusive of the Bloomberg

U.S. Aggregate Index plus U.S. 

high yield, Eurodollars, U.S. 

dollar denominated emerging 

market debt, non-ERISA 

portion of the CMBS index, 

and the 144A index.

U.S. dollar denominated bonds 

issued in the U.S. investmentgrade bond market. Maturity 

greater than one year. 

Includes U.S. Treasury, 

government-sponsored (U.S. 

agency and supranational), 

mortgage, asset-backed, and 

corporate securities. Minimum

size on corporate and asset 

backed issues is $250 million. 

Higher minimum size 

requirements for Treasuries, 

Agencies and mortgagebacked issues. 

# of securities 13,358 20,148 9,466

Market cap $28.2 trillion $33.1 trillion $27.7 trillion

Coverage of U.S. dollar 

denominated fixed 

income opportunity set

85% 100% 84%

Reconstitution frequency Monthly Monthly Monthly

As of 6/30/2023

Source: Bloomberg and FTSE Russell

In Table 21, we narrowed the list of candidates to bond indices with 100% U.S. currency exposure to eliminate 

foreign currency risk. The Bloomberg U.S. Universal Index is the broadest with approximately 100% coverage of 

the U.S. bond market. However, a significant drawback is that it contains non-investment grade and U.S. dollar 

denominated foreign bond exposure. This leads to increased correlations to stocks, which would reduce the 

diversification benefits when paired with the C, S, and I Funds. Non-investment grade and foreign bonds tend to 

have less liquidity and may increase tracking error and trading costs.

The Bloomberg U.S. Aggregate and FTSE US BIG Bond indices cover approximately 85% of the U.S. bond market 

and contain only investment grade bonds, which would provide more liquidity and lower correlation to stocks. 

These indices would provide better diversification when paired with the C, S, and I Funds. Of these two indices, the 

Bloomberg U.S. Aggregate is by far the most popular. 

Performance

Chart 4 on the following page illustrates the growth of $1 invested in each of the indices over the longest common 

time period. All three indices have performed quite similarly over time.
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Chart 4: Growth of A Dollar (As of 6/30/2023)

(As of 6/30/2023)

Bloomberg U.S. Aggregate

Index

Bloomberg U.S. Universal

Index FTSE US BIG Bond Index

Value At the End of 34 Years $5.33 $5.69 $5.41

Table 22 shows the correlation between each of these fixed income indices, as well as with equities.
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Table 22: Correlation Matrix (As of 6/30/2023)

Bloomberg U.S. 

Aggregate

Index

Bloomberg 

U.S. Universal

Index

FTSE US BIG 

Bond Index

DJ U.S. TSM 

Index

MSCI

EAFE Index

MSCI ACWI

ex U.S. IMI

Bloomberg U.S. 

Aggregate Index

1.00

Bloomberg U.S. 

Universal Index

0.98 1.00

FTSE US BIG Bond 

Index

1.00 0.97 1.00

DJ U.S. TSM Index 0.10 0.23 0.08 1.00

MSCI EAFE Index 0.11 0.25 0.09 0.85 1.00

MSCI ACWI ex U.S. 

IMI

0.11 0.26 0.09 0.85 0.99 1.00

(Longest common time period = 28 years)

As would be expected, all three fixed income indices have a high correlation with each other. The correlation 

coefficient of the two investment grade indices, the Bloomberg U.S. Aggregate Index and the FTSE US BIG Bond

Index, with U.S. and international stocks is low, pointing towards the diversification benefit they provide in a 

portfolio. While the Bloomberg U.S. Universal Index also provides a diversification benefit, the benefit is modestly 

reduced because of a higher correlation due to the inclusion of high yield securities, emerging market debt, etc., 

which tend to have a modestly higher correlation to equities.

The cumulative annualized returns over several trailing historical periods are shown in Table 23.

Table 23: Return History (%) (As of 6/30/2023)

Bloomberg U.S. Aggregate Index Bloomberg U.S. Universal Index FTSE US BIG Bond Index

1 Year -0.9 0.0 -1.0

3 Years -4.0 -3.4 -4.0

5 Years 0.8 1.0 0.8

10 Years 1.5 1.8 1.5

15 Years 2.7 3.0 2.7

20 Years 3.0 3.3 3.1

25 Years 3.9 4.1 3.9

30 Years 4.4 4.6 4.4

35 Years 5.4 - 5.4

Note: See appendix for annual returns
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The returns of the Bloomberg U.S. Aggregate Index and the FTSE US BIG Bond Index track each other closely over 

most annual periods and over trailing annualized periods. The Bloomberg U.S. Universal Index differs more on an 

annual basis but has generated similar returns as the other two indices over longer periods of time.

Table 24 shows the volatility (annualized standard deviation) of the indices over several trailing historical periods; 

there is little to no difference over longer time periods.

Table 24: Annualized Standard Deviation (%) (As of 6/30/2023)

Bloomberg U.S. Aggregate Index Bloomberg U.S. Universal Index FTSE US BIG Bond Index

3 Years 6.2 6.2 6.2

5 Years 5.5 5.5 5.5

10 Years 4.3 4.3 4.3

15 Years 4.1 4.2 4.2

20 Years 4.0 4.0 4.1

25 Years 3.9 3.9 4.0

30 Years 3.9 3.9 4.0

35 Years 4.0 - 4.0

Sharpe ratios for each of the indices over various periods are shown in Table 25. The Bloomberg U.S. Universal has 

a higher Sharpe ratio over the trailing periods referenced below relative to the other benchmarks, indicating slightly 

better performance on a risk-adjusted basis.

Table 25: Sharpe Ratios (As of 6/30/2023)

Bloomberg U.S. Aggregate Index Bloomberg U.S. Universal Index FTSE US BIG Bond Index

5 Years -0.15 -0.11 -0.15

10 Years 0.12 0.19 0.12

15 Years 0.48 0.55 0.47

20 Years 0.42 0.50 0.43

25 Years 0.52 0.58 0.52

30 Years 0.51 0.57 0.52

35 Years 0.60 - 0.61

Investability & Liquidity

While the sheer number of securities in the Bloomberg U.S. Aggregate Index make it almost impossible to replicate 

the index precisely, index fund managers are able to track the benchmark quite closely by matching the industry, 

sector, duration, maturity, and quality characteristics of the Index. Passive managers that have assets managed 

against the Bloomberg U.S. Aggregate Index have, over the years, been able to accumulate a greater portion of the 

securities comprised in the index by investing in securities when liquidity opportunities have presented themselves. 
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The major index fund managers do not offer ERISA qualified DC passive funds benchmarked to the Bloomberg U.S. 

Universal Bond Index or the FTSE US BIG Bond Index. The high yield segment of the Bloomberg U.S. Universal 

Index can also present some challenges in terms of trading costs and tracking error due to optimization and can 

result in higher tracking error. 

In order to evaluate the fixed income market’s ability to absorb the range of cash flow activity the TSP experiences, 

the following table outlines:

• Large and average daily net cash outflow size from January 2019 to June 2022

• Transaction cost (T-cost) for a one-day trade

The results in Table 26 illustrate that the following markets can absorb 100% of the large and average daily net 

cash flow in one day. Overall, we find the Bloomberg U.S. Aggregate Index to be most liquid of the three indices.

Table 26: Liquidity Analysis (As of September 2023)

U.S. Fixed Income Indices

Large Net Cash Flow –

$350 million (T-cost)

Average Net Cash Flow –

$85 million (T-cost)

Bloomberg U.S. Aggregate Index 0.15% 0.15%

Bloomberg U.S. Universal Index 0.20% 0.20%

FTSE US BIG Bond Index 0.40% 0.40%

Source: BlackRock

Table 27 compares the historical tracking error of institutional index funds managed to the Bloomberg U.S. 

Aggregate Index by leading index fund providers. All of the managers have been able to track the Bloomberg U.S. 

Aggregate Index fairly closely, with tracking error ranging from 0.13% to 0.26%, a 0.13% spread across the 

different providers. 

Table 27: Index Fund 5-Year Tracking Error (%) (As of 6/30/2023)

Bloomberg U.S. Aggregate Index Bloomberg U.S. Universal Index FTSE US BIG Bond Index

BlackRock 0.13 -- --

Mellon 0.07 -- --

Northern Trust 0.21 -- --

SSGA 0.15 -- --

Vanguard 0.26 -- --

Source: BlackRock, Mellon, Northern Trust, SSGA, and Vanguard
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Acceptance

Table 28 displays the value of passively managed assets benchmarked to each of the three indices by five leading 

index fund providers. As noted previously, the five index managers do not offer products indexed to the Bloomberg 

U.S. Universal or FTSE US BIG Bond indices.

Table 28: Assets Indexed to Benchmark (As of 6/30/2023)

Bloomberg U.S. Aggregate Index Bloomberg U.S. Universal Index FTSE US BIG Bond Index

Total Passive Assets $567 Billion -- --

Source: BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Note: Total passive assets include assets provided by BlackRock, which are as of March 31, 2023. Remaining data is as of June 30, 2023. 

The Bloomberg U.S. Aggregate Index is a widely followed performance benchmark that is tracked by hundreds of 

billions of dollars in institutional assets. It is the most widely used fixed income benchmark by U.S.-based 

institutional investors. The Bloomberg U.S. Universal Index has still not gained acceptance as a passive 

benchmark, with no ERISA qualified DC products offered by the five major index managers. Similarly, there are no 

passive assets benchmarked to the FTSE US BIG Bond Index.
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Benchmark Recommendation for the F Fund

Given there are no material benefits associated with moving away from the current index, we recommend that the 

existing benchmark, the Bloomberg U.S. Aggregate Index, be maintained for the F Fund. The main reasons for our 

recommendation are as follows:

• Remains a widely utilized benchmark for the U.S. bond market.

• Provides broad coverage of the U.S. bond market at approximately 85%

• Contains only investment grade bonds, which reduces correlations to equities, making it a better diversifier 

when pairing with the C, S, and I Funds

• Lack of foreign currency exposure eliminates a significant source of volatility for the F Fund
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I Fund

Summary

We have reviewed the International Stock Index Investment Fund’s (I Fund) legislative guidelines and compared its 

current benchmark index, the MSCI EAFE Index, to other leading international equity indices.

Legislative Guidelines

The legislative guidelines that describe the I Fund are stated below:

(4) (A) The Board shall select an index which is a commonly recognized index comprised of stock the aggregate 

market value of which is a reasonably complete representation of the international equity markets 

excluding the United States equity markets.

(B) The International Stock Index Investment Fund shall be invested in a portfolio designed to replicate the 

performance of the index selected under subparagraph (A). The portfolio shall be designed such that, to 

the extent practicable, the percentage of the International Stock Index Investment Fund that is invested in 

each stock is the same as the percentage determined by dividing the aggregate market value of all shares 

of that stock by the aggregate market value of all shares of all stocks included in such index.

Benchmarks Considered

We initially short-listed the following benchmarks for the I Fund:

• DJ Developed Markets ex-U.S. Index (95% coverage of the market capitalization of stocks traded in 

developed markets, excluding the U.S.; provides approximately 71% coverage of the international equity 

opportunity set)

• FTSE Developed All Cap ex US Index (a market capitalization weighted index representing the performance of 

large, mid, and small cap stocks in developed markets, excluding the U.S.; provides approximately 73% 

coverage of the international equity opportunity set)

• FTSE All-World ex US Index (includes large and mid cap stocks providing coverage of developed and emerging 

markets, excluding the U.S.; provides approximately 88% coverage of the international equity opportunity set)

• FTSE Global All Cap ex US Index (a market capitalization weighted index representing the performance of 

large, mid, and small cap stocks in developed and emerging markets, excluding the U.S.; provides 

approximately 97% coverage of the international equity opportunity set)

• FTSE Global All Cap ex US ex China ex Hong Kong Index (a market capitalization weighted index representing 

the performance of large, mid, and small cap stocks in developed and emerging markets, excluding the U.S., 

China, and Hong Kong; provides approximately 91% coverage of the international equity opportunity set)

• MSCI EAFE Index (captures large and mid cap stocks across developed markets, excluding the U.S. and 

Canada; provides approximately 55% coverage of the international equity opportunity set - Current 

Benchmark)
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• MSCI World ex USA Index (captures large and mid cap stocks across developed markets, excluding the U.S.; 

provides approximately 62% coverage of the international equity opportunity set)

• MSCI World ex USA IMI (captures large, mid, and small cap stocks across developed markets, excluding the 

U.S.; provides approximately 71% coverage of the international equity opportunity set)

• MSCI ACWI ex USA Index (captures large and mid cap stocks across developed markets and emerging 

markets, excluding the U.S.; provides approximately 85% coverage of the international equity opportunity set)

• MSCI ACWI ex USA ex China ex Hong Kong Index (captures large and mid cap stocks across developed 

markets and emerging markets, excluding the U.S., China, and Hong Kong; provides approximately 77%

coverage of the international equity opportunity set) 

• MSCI ACWI ex USA IMI (captures large, mid, and small cap stocks across developed markets and emerging 

markets, excluding the U.S.; provides approximately 99% coverage of the international equity opportunity set)

• MSCI ACWI IMI ex USA ex China ex Hong Kong Index (captures large, mid, and small cap stocks across 

developed markets and emerging markets, excluding the U.S., China, and Hong Kong; provides approximately 

90% coverage of the international equity opportunity set)

• S&P Global Ex-U.S. Broad Market Index (captures developed and emerging market stocks, excluding the U.S.; 

it is comprised of the S&P Developed Broad Market Index and the S&P Emerging Broad Market Index and 

provides approximately 100% coverage of the international equity opportunity set)

The benchmarks in the short list were selected with the goal of expanding the international equity opportunity set 

to include Canada, emerging markets, and small cap stocks. 

We eliminated the DJ Developed Markets ex-U.S. Index and the S&P Global Ex-U.S. Broad Market Index from 

further consideration based on the lack of significant passive assets managed to them. None of the major index 

fund managers offer funds indexed to these benchmarks, either in the U.S. or internationally. For other passive 

providers like FTSE, we narrowed down the indices being considered to ones with broad opportunity sets due to 

the lack of passive assets managed across more than one major passive provider. Table 29 lists the benchmarks 

that were considered further in the benchmark evaluation process. 
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 37

Table 29: Benchmark Comparative Summary (As of 6/30/2023) 

Source: MSCI and FTSE Russell, BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Note: DM = developed market countries & EM = emerging market countries. Market coverage ratios are based on the index providers broadest investable international equity index within 

their suite of indices. Assets shown in AUM column include total passive assets provided by BlackRock, which are as of 3/31/2023. Assets of other providers are as of 6/30/2023.
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 38

We eliminated the MSCI World ex USA Index because it lacked exposure to emerging market countries and small 

caps. Similarly, we eliminated the MSCI ACWI ex USA Index because it does not cover small caps. We eliminated

the FTSE Global All Cap ex US ex China ex Hong Kong Index as the index is not currently available. The other 

FTSE international equity index was eliminated from further considerations as Vanguard is the only investment 

management firm out of the five major index fund providers in the U.S. that has assets benchmarked to FTSE

international equity indices. MSCI international equity indices continue to be the most widely followed non-U.S. 

stock indices for U.S. based institutional investors. Additionally, counter to the FTSE ex China ex Hong Kong index,

the MSCI ACWI ex USA ex China ex Hong Kong Index and MSCI ACWI IMI ex USA ex China ex Hong Kong Index

are readily available for utilization, despite no major providers currently offering any passive strategies managed to 

them. Through our research, we were able to document that there are currently more than 10 existing licenses for 

the MSCI ACWI ex USA ex China ex Hong Kong Index and the MSCI ACWI IMI ex USA ex China ex Hong Kong

Index. Of these licenses, we are aware of at least one institutional investor with approximately $4B managed to the 

MSCI ACWI IMI ex USA ex China ex Hong Kong Index across their asset pools. 

Although included in our analysis, the current benchmark, the MSCI EAFE Index, contains only developed market 

countries and large and mid cap stocks covering only 55% of the non-US equity market. We prefer the alternative

benchmark candidates which offer broader coverage ranging from 70% to 99% of the non-U.S. stock market. We 

believe the broader coverage of the alternative indices evaluated would be more consistent with the statutory 

requirement for the I Fund of offering an investment option that provides reasonably complete representation of 

the international equity markets. We would consider the indices offering exposure to both developed and emerging 

market countries to be the most aligned. To this point, it is also important to note that the international equity 

market has evolved since the I Fund was incepted in 2001. For example, in 2002 the MSCI EAFE Index captured 

74% of the international equity market opportunity set compared to only 55% in 2023.

We compare the broad characteristics of each of the remaining benchmarks in Table 30.
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 39

Table 30: Benchmark Comparison (As of 6/30/2023)

Source: MSCI

Note: DM = developed market countries and EM = emerging market countries

1 Float adjusted

2 One-way annual turnover

3 Historical performance is simulated for these benchmarks by MSCI

MSCI EAFE Index MSCI World ex USA IMI MSCI ACWI ex USA IMI

MSCI ACWI ex USA ex 

China ex Hong Kong Index3

MSCI ACWI IMI ex USA ex 

China ex Hong Kong Index3

Inclusion criteria Targets 85% market-cap 

coverage of each country

(large and mid cap), 

excluding the U.S. and 

Canada

Targets 99% market-cap 

coverage of each country 

(large, mid and small cap), 

excluding the U.S.

Targets 99% market-cap 

coverage of each country 

(large, mid and small cap)

Captures large and mid cap

representation across DM 

and EM, excluding the 

U.S., China, and Hong 

Kong

Captures large, mid, and 

small cap representation 

across DM and EM, 

excluding the U.S., China, 

and Hong Kong

Country coverage 21 DM 22 DM (includes Canada) 22 DM + 24 EM 21 DM + 23 EM 21 DM + 23 EM

Coverage of non-U.S. 

equity markets

55% 71% 99% 77% 90%

# of securities 798 3,374 6,710 1,518 5,621

Market cap1 $15.6 trillion $20.1 trillion $27.9 trillion $21.7 trillion $25.4 trillion

Reconstitution 

frequency

Quarterly Quarterly Quarterly Quarterly Quarterly

Turnover2 2.6% 2.5% 3.0% N/A N/A
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 40

As we review index characteristics below and historical statistics in the following section, we will focus on the 

broad non-U.S. equity indices defined below, which include the current I Fund benchmark (MSCI EAFE Index) as 

well as each opportunity set being considered (i.e., expanding exposure to include Canada, emerging markets, 

and/or non-U.S. small-cap stocks): 

• Developed Market Indices: 

○ MSCI EAFE Index (current I Fund benchmark): an equity index that captures large and mid cap

representation across developed market countries around the world, excluding the U.S. and Canada. 

○ MSCI World ex USA IMI: an equity index that captures large, mid, and small cap representation across 

developed market countries, excluding the U.S. 

• Developed & Emerging Market Indices: 

○ MSCI ACWI ex USA IMI: an equity index that captures large, mid, and small cap representation across 

developed and emerging market countries, excluding the U.S. 

○ MSCI ACWI ex USA ex China ex Hong Kong Index: an equity index that captures large and mid cap

representation across developed and emerging market countries, excluding the U.S., Hong Kong, and 

China

○ MSCI ACWI IMI ex USA ex China ex Hong Kong Index: an equity index that captures large, mid, and small

cap representation across developed and emerging market countries, excluding the U.S., Hong Kong, and 

China

Table 31 compares the country allocation of each of the indices. The MSCI ACWI ex USA IMI is the most diversified 

index with the largest country weight to Japan at 15.3% and China and Hong Kong representing 9.0%.

Removing China and Hong Kong does not significantly impact diversification among the countries. Japan, the 

largest country weight, increases to 16.1% for the MSCI ACWI ex USA ex China ex Hong Kong Index and 16.8% 

for the MSCI ACWI IMI ex USA ex China ex Hong Kong Index.

The MSCI ACWI ex USA ex China ex Hong Kong Index and the MSCI ACWI IMI ex USA ex China ex Hong Kong

Index have emerging market exposures of 22% compared to the MSCI ACWI ex USA IMI exposure of 28%. 

The MSCI EAFE Index and the MSCI World ex USA IMI have no emerging market exposure, and, as a result, have 

more concentrated country exposures among the developed markets. Among these two indices, the MSCI World ex

USA IMI index is more diversified, as it has exposure to Canada (10.4%), while the MSCI EAFE Index does not.
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 41

Table 31: Country Allocations (%) (As of 6/30/2023)

MSCI EAFE Index

MSCI World ex 

USA IMI

MSCI ACWI ex 

USA IMI

MSCI ACWI ex 

USA ex China ex 

Hong Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

Developed Markets

Australia 7.3 6.9 5.0 5.3 5.5

Austria 0.2 0.3 0.2 0.1 0.2

Belgium 0.9 0.9 0.6 0.7 0.7

Canada -- 10.4 7.5 8.4 8.3

Denmark 3.1 2.6 1.9 2.2 2.1

Finland 0.9 0.8 0.6 0.6 0.7

Israel 0.6 0.8 0.6 0.4 0.6

France 12.4 10.1 7.3 8.9 8.0

Germany 8.6 7.3 5.3 6.2 5.8

Hong Kong 2.5 2.1 1.6 - -

Ireland 0.8 0.7 0.5 0.6 0.5

Italy 2.5 2.4 1.7 1.8 1.9

Japan 22.4 21.2 15.3 16.1 16.8

Netherlands 4.6 3.9 2.8 3.3 3.1

New Zealand 0.2 0.3 0.2 0.1 0.2

Norway 0.6 0.8 0.6 0.5 0.6

Portugal 0.2 0.2 0.1 0.2 0.2

Singapore 1.4 1.3 1.0 1.0 1.1

Spain 2.6 2.3 1.6 1.9 1.8

Sweden 3.3 3.2 2.3 2.3 2.5

Switzerland 10.1 8.3 6.0 7.2 6.6

U.K 14.7 13.2 9.6 10.6 10.5

Emerging Markets

Brazil -- -- 1.6 1.7 1.7

Chile -- -- 0.2 0.2 0.2

China -- -- 7.4 -- --

Colombia -- -- 0.0 0.0 0.0

Czech Rep. -- -- 0.0 0.0 0.0

Egypt -- -- 0.0 0.0 0.0

Greece -- -- 0.1 0.1 0.1

Hungary -- -- 0.1 0.1 0.1
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 42

MSCI EAFE Index

MSCI World ex 

USA IMI

MSCI ACWI ex 

USA IMI

MSCI ACWI ex 

USA ex China ex 

Hong Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

Emerging Markets 

(cont.)

India -- -- 4.4 4.5 4.9

Indonesia -- -- 0.6 0.6 0.6

South Korea -- -- 3.5 3.8 3.9

Kuwait -- -- 0.2 0.3 0.3

Malaysia -- -- 0.4 0.4 0.4

Mexico -- -- 0.8 0.9 0.8

Peru -- -- 0.1 0.1 0.1

Philippines -- -- 0.2 0.2 0.2

Poland -- -- 0.2 0.3 0.3

Qatar -- -- 0.2 0.3 0.3

South Africa -- -- 0.9 1.0 1.0

Saudi Arabia -- -- 1.2 1.3 1.3

South Korea -- -- 3.5 3.8 3.9

Taiwan -- -- 4.6 4.8 5.0

Thailand -- -- 0.6 0.6 0.6

Turkey -- -- 0.2 0.2 0.2

UAE -- -- 0.3 0.4 0.4

Total Developed 100.0 100.0 72.2 78.3 77.6

Total Emerging 0.0 0.0 27.8 21.7 22.4

Total Index 100.0 100.0 100.0 100.0 100.0

Source: MSCI Index Service

Performance

Chart 5 represents the growth of $1 invested in each of the indices over the longest common time period of 21 

years. All of the indices have outperformed the MSCI EAFE Index, over the past 21 years. This has been due to 

emerging market and international small cap exposure. Recent poor performance in China has helped the MSCI 

ACWI IMI ex USA ex China ex Hong Kong Index outperform all of the others. Chinese equities have performed 

poorly the last couple of years due to the zero-Covid policy hurting economic growth and property downturn

focused on reducing excessive borrowing by developers and over supply of property. These securities bounced 

back at the end of last year after the abrupt end of China’s zero-Covid policy, but returns have been down in 2023 

due to concerns of China losing momentum on economic recovery and continued struggles in the property sector.
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 43

Chart 5: Growth of A Dollar (As of 6/30/2023)

(As of 

6/30/2023) MSCI EAFE Index

MSCI World ex 

USA IMI

MSCI ACWI ex 

USA IMI

MSCI ACWI ex USA 

ex China ex Hong 

Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

Value At the End 

of 21 Years

$3.63 $3.84 $3.89 $3.86 $4.02

Table 32 shows the correlation between the indices under consideration. As expected, the correlation between the 

indices is high.
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 44

Table 32: Correlation Matrix (As of 6/30/2023) 

MSCI EAFE Index

MSCI World ex USA 

IMI

MSCI ACWI ex USA 

IMI

MSCI ACWI ex USA ex 

China ex Hong Kong 

Index

MSCI ACWI IMI ex USA 

ex China ex Hong 

Kong Index

MSCI EAFE 1.00

MSCI World ex USA IMI 1.00 1.00

MSCI ACWI ex USA IMI 0.99 0.99 1.00

MSCI ACWI ex USA ex China 

ex Hong Kong Index

0.99 1.00 1.00 1.00

MSCI ACWI IMI ex USA ex 

China ex Hong Kong Index

0.99 1.00 1.00 1.00 1.00

(Longest common time period = 21 years)

Table 33 compares the correlation for the indices under consideration for the I Fund with those recommended for the C, S, and F Funds.

Table 33: Correlation Matrix (As of 6/30/2023)

Bloomberg U.S.

Aggregate Index S&P 500 Index

DJ U.S. TSM

Completion Index MSCI EAFE Index

MSCI World ex 

USA IMI

MSCI ACWI ex 

USA IMI

MSCI ACWI ex 

USA ex China ex 

Hong Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

Bloomberg U.S. Aggregate 

Index

1.00

S&P 500 Index 0.16 1.00

DJ U.S. Completion TSM 

Index

0.12 0.93 1.00

MSCI EAFE Index 0.21 0.87 0.83 1.00

MSCI World ex USA Index 0.21 0.88 0.84 1.00 1.00

MSCI ACWI ex USA IMI 0.22 0.86 0.84 0.99 0.99 1.00

MSCI ACWI ex USA ex 

China ex Hong Kong Index

0.21 0.88 0.84 0.99 1.00 1.00 1.00

MSCI ACWI IMI ex USA ex 

China ex Hong Kong Index

0.21 0.88 0.84 0.99 1.00 1.00 1.00 1.00

(Longest common time period = 21 years)
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 45

The cumulative annualized returns over several trailing historical periods are shown in Table 34.

As shown in the table, over long time periods (20+ years) broader exposure to emerging markets and international 

small caps helped the broader indices to outperform the current MSCI EAFE index. However, when expanding 

market coverage to emerging markets and also removing exposure to China, Hong Kong, and Russia, historical 

performance has been better than the current benchmark over most time periods. 

Table 34: Return History (%) (As of 6/30/2023)

MSCI EAFE Index

MSCI World ex USA 

IMI

MSCI ACWI ex USA 

IMI

MSCI ACWI ex USA 

ex China ex Hong 

Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

1 Year 18.8 16.3 12.5 16.8 16.1

3 Years 8.9 8.9 7.3 10.0 9.8

5 Years 4.4 4.2 3.4 4.8 4.5

10 Years 5.4 5.5 4.9 5.2 5.3

15 Years 3.4 3.4 3.1 3.2 3.4

20 Years 6.5 6.8 6.9 6.8 7.1

25 Years 4.3 4.8 4.9 - -

30 Years 5.3 - - - -

35 Years 5.0 - - - -

Note: See appendix for annual returns

Table 35 shows the volatility (annualized standard deviation) of the indices over several trailing historical periods. 

Relative to the current MSCI EAFE Index, the broader indices have exhibited similar annualized standard deviation. 

The broader indices have tended to have moderately higher volatility over longer time periods due to the inclusion 

of emerging markets and international small caps relative to the MSCI EAFE Index.

Table 35: Annualized Standard Deviation (%) (As of 6/30/2023)

MSCI EAFE Index

MSCI World ex USA 

IMI

MSCI ACWI ex USA 

IMI

MSCI ACWI ex USA 

ex China ex Hong 

Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

3 Years 18.1 18.1 17.1 17.7 17.8

5 Years 17.8 18.2 17.7 18.0 18.3

10 Years 15.0 15.1 14.9 15.1 15.1

15 Years 18.0 18.1 18.3 18.2 18.4

20 Years 16.6 16.8 17.1 17.0 17.1

25 Years 16.8 16.9 17.3 - -

30 Years 16.3 - - - -

35 Years 16.9 - - - -
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 46

The realized Sharpe ratios for each of the indices are shown in Table 36.

Table 36: Sharpe Ratios (As of 6/30/2023)

MSCI EAFE Index

MSCI World ex USA 

IMI

MSCI ACWI ex USA 

IMI

MSCI ACWI ex USA 

ex China ex Hong 

Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

5 Years 0.16 0.14 0.10 0.18 0.16

10 Years 0.29 0.30 0.26 0.28 0.29

15 Years 0.14 0.15 0.13 0.13 0.14

20 Years 0.31 0.33 0.33 0.33 0.34

25 Years 0.15 0.17 0.18 - -

30 Years 0.18 - - - -

35 Years 0.12 - - - -

Over longer time periods (20+ years) the broader indices have slightly higher Sharpe ratios relative to the current 

MSCI EAFE Index due to higher realized returns and similar standard deviations. However, when expanding market 

coverage to emerging markets and also removing exposure to China, Hong Kong, and Russia, historical Sharpe 

ratios have been better than the current benchmark over most time periods. 

Investability & Liquidity

All the benchmarks under consideration take into account the liquidity of stocks for inclusion in the index. Although 

some stocks in certain smaller countries can be difficult to trade, index fund managers still hold most, if not all 

stocks, though they may have a higher tolerance for mis-weights as the benefit from fully replicating the 

benchmark can be more than offset by transaction costs. 

Investors have become increasingly interested in the non-U.S. equity markets over the past several decades, with 

prevalence among institutional investors dating back to the 1990s. Today, institutional investors have embraced 

non-U.S. equity as an essential component of their asset allocation strategies. As a result, liquidity in the non-U.S. 

equity related index products has increased substantially. 

More specifically, liquidity in the markets related to the indices has reached a sizeable level, as shown in Table 37.
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 47

Table 37: Average Daily Trading Volume (ADV) ($) (As of 6/30/2023)

MSCI EAFE Index

MSCI World ex USA 

IMI

MSCI ACWI ex USA 

IMI

MSCI ACWI ex USA 

ex China ex Hong 

Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

30 Days 3,521,515,385 6,107,344,255 44,657,808,647 13,308,620,834 23,811,672,836

3 Months 3,050,604,196 5,432,422,718 42,655,577,733 10,121,891,856 20,016,336,517

Source: Bloomberg

In order to evaluate the international equity market’s ability to absorb the range of cash flow activity the TSP 

experiences, the following table outlines:

• Large and average daily net cash outflow size from January 2019 to June 2022

• Percentage of the cash flow the market can absorb at Market on Close (MOC) without exceeding 3% of 

Average Daily Volume (ADV)

• Estimated Explicit Cost (commissions + taxes)

• Implicit Cost (MOC)

The results in Table 38 illustrate the following international equity markets can absorb more than 97% of the large 

and 100% of the average daily net cash flow at the market on close without exceeding 3% of average daily 

volume. A threshold of 3% ADV is the amount that TSP’s managers are generally comfortable trading at or near

the close without causing undue market impact. For a large net daily cash flow, if 100% of the trade is not 

executed on market on close, the trade can be executed through derivatives in a low-cost manner. Overall, we find 

the following markets have depth and liquidity to be able to absorb meaningful size daily cash flow activity at 

marginal cost. 

Table 38: Liquidity Analysis (As of September 2023)

Large Net Cash Flow - $1.0 Billion Average Net Cash Flow - $150 Million

International Equity 

Indices

% at MOC 

(3% of ADV)

Explicit Costs 

(Comm + 

Taxes)

Implicit Costs 

(MOC)

% at MOC 

(3% of ADV)

Explicit Costs 

(Comm + 

Taxes)

Implicit Costs 

(MOC)

MSCI EAFE Index 96.9% 0.14% 0.00% 100.0% 0.14% 0.00%

MSCI World ex USA IMI 99.0% 0.13% 0.01% 100.0% 0.13% 0.00%

MSCI ACWI ex USA IMI 98.9% 0.12% 0.01% 100.0% 0.12% 0.01%

Source: BlackRock

On the topic of tracking error, due to the unique nature of investing in international markets, different 

methodologies implemented by the investment managers will produce different levels of tracking error. For 

example, some investment managers apply fair value pricing adjustments to better reflect the value of foreign 

securities due to differences in market closure between foreign markets and the U.S. equity market. Since 

benchmarks typically are calculated using local closing prices and do not apply fair value pricing adjustments, the 
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 48

difference in methodologies can cause tracking error between the investment manager’s performance and the 

benchmark.

Acceptance

The MSCI indices are the most widely followed non-U.S. stock indices for U.S. based institutional investors. Table 

39 shows the assets indexed to each of the international MSCI indices considered.

Table 39: Assets Indexed to Benchmark (As of 6/30/2023)

MSCI EAFE Index

MSCI World ex 

USA IMI

MSCI ACWI ex 

USA IMI

MSCI ACWI ex 

USA ex China ex 

Hong Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

Total Passive 

Assets

$266 Billion $17 Billion $168 Billion -- --

Source: BlackRock, Mellon, Northern Trust, SSGA, and Vanguard

Note: Total passive assets include assets provided by BlackRock, which are as of March 31, 2023. Remaining data is as of June 30, 2023.

In the table above, we illustrate the amount of assets that are benchmarked to the underlying index. This 

information represents assets benchmarked to each unique index and does not factor any overlap in assets 

between the different indices.

When looking at the assets invested across the passive providers, the MSCI EAFE Index is the most popular index, 

with $266 B invested in products tracking this index. The MSCI ACWI ex USA IMI is not far behind with $168 B 

benchmarked to this index. Although the assets benchmarked to the MSCI World ex USA IMI is much smaller, it 

remains a viable option with $17 B of total assets benchmarked to this index. However, it is important to note that 

only two of the five investment managers manage assets to this index.

Additionally, although there are no assets are managed to the MSCI ACWI ex USA ex China ex Hong Kong Index 

and MSCI ACWI IMI ex USA ex China ex Hong Kong Index by the major index providers, these indices are readily 

available for utilization. Through our research, we were able to document that there are currently more than 10 

existing licenses for the MSCI ACWI ex USA ex China ex Hong Kong Index and the MSCI ACWI IMI ex USA ex 

China ex Hong Kong Index. Of these licenses, we are aware of at least one institutional investor with approximately 

$4B managed to the MSCI ACWI IMI ex USA ex China ex Hong Kong Index across their asset pools. 

In addition to evaluating assets currently benchmarked to the various indices, Tables 40-42 also highlight the 

international benchmarks offered within Plans of several applicable peer groups. As illustrated in the tables, all 

plans evaluated currently offer exposure to both developed and emerging markets through their target date fund 

solution and core menu lineup (either actively or passively). 
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 49

Table 40: International Fund Benchmarks of Investment Options of Top 15 Largest U.S. Defined Contribution Plans

Company TDF Non-U.S. Equity Benchmark Core Lineup Non-U.S. Equity Benchmark

1 Boeing

Custom TDF1

MSCI ACWI ex USA IMI

MSCI ACWI ex USA IMI

2 IBM

Custom TDF1

FTSE Emerging Markets All Cap China A 

Inclusion Index

MSCI ACWI ex USA Index

MSCI Europe Index

MSCI Pacific Index

FTSE Emerging Markets All Cap China A 

Inclusion Index

MSCI ACWI ex USA Index

MSCI Europe Index

MSCI Pacific Index

3 AT&T

Custom TDF

MSCI ACWI ex USA Index

MSCI ACWI ex USA Index

4 Bank of America MSCI ACWI ex USA IMI

FTSE Global All Cap ex US Index

MSCI ACWI ex USA Growth Index

MSCI ACWI ex USA Index

5 Raytheon Technologies2 N/A

MSCI ACWI ex USA Index 

MSCI Emerging Markets Index

6 Wells Fargo MSCI ACWI ex USA IMI

MSCI ACWI ex USA Index

MSCI EAFE Index

MSCI Emerging Markets Index

7 Lockheed Martin

Custom TDF

Data not publicly available

Data not publicly available

8 Verizon

Custom TDF

Data not publicly available

Data not publicly available

9 Microsoft MSCI ACWI ex USA IMI Data not publicly available

10 JP Morgan Chase

Custom TDF3

MSCI EAFE Index

MSCI EAFE Small Cap Index 

MSCI Emerging Markets Index

MSCI EAFE Index

MSCI EAFE Small Cap Index 

MSCI EAFE Value Index

MSCI Emerging Markets Index

11 Walmart

Custom TDF

MSCI ACWI ex USA IMI

MSCI ACWI ex USA IMI

12 Northrop Grumman Corp.

Custom TDF1

MSCI EAFE Index

MSCI Emerging Markets Index

MSCI EAFE Index

MSCI Emerging Markets Index

13 Kaiser Permanente

MSCI EAFE Index 

MSCI Emerging Markets Index

FTSE Global All Cap ex US Index

MSCI ACWI ex USA Index

14 California University

Custom TDF

MSCI Emerging Markets IMI ex Tobacco ex 

Fossil Fuels Index

MSCI World ex USA IMI ex Tobacco ex Fossil 

Fuels Index

MSCI EAFE Index

MSCI Emerging Markets IMI ex Tobacco ex 

Fossil Fuels Index

MSCI World ex USA IMI ex Tobacco ex Fossil 

Fuels Index

15 New York State MSCI ACWI ex USA Index

MSCI ACWI ex USA Index

MSCI EAFE Index

MSCI Emerging Markets Index

Source: Pensions & Investments as of 12/31/2022, Form 5500 filings, and publicly sourced plan information
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 50

Note: Benchmarks shown for data available and may be representative of the passive and/or active core lineup investment option. For custom 

strategies, benchmarks may represent the benchmarks of the underlying components.

1Custom target date fund solution offered in plan. If benchmark information was not available for custom TDF, core lineup benchmark(s) shown. 

2

Information provided for the Raytheon Retirement Savings Plan

3Custom target date fund solution offered in plan. Data was not available for the custom benchmark, however it was confirmed that the active 

international strategy is not included.

Table 41: International Fund Benchmarks of Investment Options of Top 10 Largest Government Contractor Defined 

Contribution Plans

Company TDF Non-U.S. Equity Benchmark Core Lineup Non-U.S. Equity Benchmark

1 Lockheed Martin

Custom TDF 

Data not publicly available

Data not publicly available

2 Raytheon Technologies1 N/A

MSCI ACWI ex USA Index 

MSCI Emerging Markets Index

3 General Dynamics Corp. FTSE Global All Cap ex US Index MSCI ACWI ex USA IMI

4 Pfizer Inc. FTSE Global All Cap ex US Index

MSCI ACWI ex USA IMI

MSCI EAFE Index

MSCI Emerging Markets Index

5 Boeing

Custom TDF2

MSCI ACWI ex USA IMI

MSCI ACWI ex USA IMI

6 UnitedHealth Group Inc.

MSCI Emerging Markets Index

MSCI World ex USA Index

MSCI ACWI ex USA IMI

MSCI ACWI ex USA Index

MSCI Emerging Markets Index

7 Northrop Grumman Corp.

Custom TDF2

MSCI EAFE Index

MSCI Emerging Markets Index

MSCI EAFE Index

MSCI Emerging Markets Index

8 McKesson Corp. FTSE Global All Cap ex US Index

MSCI EAFE Index

MSCI EAFE Small Cap Index

MSCI Emerging Markets Index

9 Leidos Holdings Inc. FTSE Global All Cap ex US Index

FTSE Global All Cap ex US Index

MSCI ACWI ex USA Index

10 Humana Inc.

MSCI EAFE Index

MSCI Emerging Markets Index

MSCI ACWI ex USA IMI

MSCI EAFE Index

Source: Bloomberg, Form 5500 filings, and publicly sourced plan information

Note: Benchmarks shown for data available and may be representative of the passive and/or active core lineup investment option. For custom 

strategies, benchmarks may represent the benchmarks of the underlying components.

1

Information provided for the Raytheon Retirement Savings Plan

2Custom target date fund solution offered in plan. If benchmark information was not available for custom TDF, core lineup benchmark(s) shown. 
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Aon Investments USA, Inc. 51

Table 42: International Fund Benchmarks of Investment Options of Top 15 Largest Publicly Traded U.S. Companies’ 

Defined Contribution Plans

Company TDF Non-U.S. Equity Benchmark Core Lineup Non-U.S. Equity Benchmark

1 Apple MSCI ACWI ex USA IMI

FTSE Global All Cap ex US Index

MSCI ACWI ex USA Index

2 Microsoft MSCI ACWI ex USA IMI Data not publicly available

3 Amazon FTSE Global All Cap ex US Index

FTSE Global All Cap ex US Index

MSCI ACWI ex USA Index

MSCI World ex USA Index

4 Nvidia MSCI ACWI ex USA Index

FTSE Global All Cap ex US Index

MSCI ACWI ex USA Index

MSCI ACWI ex USA SMID Cap Index

5 Alphabet1 FTSE Global All Cap ex US Index

FTSE Developed All Cap ex US Index

FTSE Emerging Markets All Cap China A 

Inclusion Index

MSCI EAFE Index

6 Tesla MSCI ACWI ex USA Index

MSCI ACWI ex USA Index

MSCI EAFE Index

7 Meta Platforms FTSE Global All Cap ex US Index MSCI ACWI ex USA IMI

8 Berkshire Hathaway2 Data not available Data not available

9 ExxonMobil N/A MSCI World ex USA IMI

10 UnitedHealth Group Inc.

MSCI World ex USA Index

MSCI Emerging Markets Index

MSCI ACWI ex USA IMI

MSCI ACWI ex USA Index

MSCI Emerging Markets Index

11 Eli Lilly & Co

Custom TDF3

Data not publicly available

MSCI ACWI ex USA IMI

MSCI ACWI ex USA Index

12 JP Morgan Chase

Custom TDF4

MSCI EAFE Index

MSCI EAFE Small Cap Index 

MSCI Emerging Markets Index

MSCI EAFE Index

MSCI EAFE Small Cap Index

MSCI EAFE Value Index

MSCI Emerging Markets Index

13 Johnson & Johnson Data not publicly available Data not publicly available

14 Visa Inc. FTSE Global All Cap ex US Index

FTSE Global All Cap ex US Index

MSCI EAFE Index

15 Procter & Gamble N/A MSCI ACWI ex USA Index

Source: DJ U.S. Total Stock Market Index Holdings as of 9/30/2023, Form 5500 filings, and publicly sourced plan information

Note: Benchmarks shown for data available and may be representative of the passive and/or active core lineup investment option. For custom 

strategies, benchmarks may represent the benchmarks of the underlying components.

1Google LLC 401(k) Savings Plan shown as largest subsidiary of Alphabet

2Berkshire Hathaway does not offer a consolidated defined contribution plan. Each of the subsidiaries has autonomy. Therefore, the plans have not 

been included in the analysis.

3Enough information was available to confirm that the custom TDF does not utilize the core menu lineup. However, the benchmark of the 

international component of the custom TDF remains unknown.

4Custom target date fund solution offered in plan. Data was not available for the custom benchmark, however it was confirmed that the active 

international strategy is not included.
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Analysis of International Equity Benchmarks

Modern Portfolio Theory suggests that the “market portfolio” is the most efficient portfolio (in terms of risk/return 

trade-off) that an investor can hold. The “market portfolio” is a market-cap weighted sum of all available asset 

classes/regions/countries. Excluding segments of the market limits investors’ opportunities (return and/or 

diversification potential).

In general, we recommend constructing equity portfolios with the broadest possible market coverage. For instance, 

we would recommend the DJ U.S. Total Stock Market Index, which provides complete coverage of large, mid, and 

small-cap stocks, as the benchmark for the broad U.S. equity market. The C and S Fund’s recommended 

benchmarks, the S&P 500 Index and the DJ U.S. Completion TSM Index, respectively, when combined, provide 

coverage of the broad U.S. equity opportunity set that is very similar to the coverage provided by the DJ U.S. Total 

Stock Market Index.

The I Fund’s existing benchmark, the MSCI EAFE Index, excludes small cap stocks, Canadian equities, and 

emerging markets securities. As noted earlier, the Canadian equity market is the fourth-largest equity market 

outside of the United States, and emerging markets represent roughly one fourth of the non-U.S. equity 

opportunity set. Moreover, emerging markets represent a significant and growing portion of global growth or GDP 

and an increasingly larger portion of the world equity market capitalization. Over the past two decades, emerging 

economies, such as Brazil, China, India, Taiwan, and South Africa, have expanded at a much faster pace than 

developed countries.

Today, emerging markets contribute to 54% of global GDP as compared to 39% in 2003 (shown in Chart 6).

Chart 6: Global GDP Contribution

Source: The Conference Board of Global Economic Outlook (Global GDP shares using Purchasing Power Parities)

Many observers broadly expect emerging economies to continue to grow at a faster pace than developed 

economies. Reasons include:
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Aon Investments USA, Inc. 53

• Favorable demographics and a growing middle class

• Growth in local consumption demand

• Improving economic, legal and regulatory systems

• Disciplined fiscal and monetary policies 

Emerging countries today are much less burdened by massive amounts of public debt as compared to their 

developed counterparts (Chart 7). Several emerging market countries have also accumulated massive amounts of 

foreign currency reserves (Chart 8), which have proven to provide a cushion against external economic shocks. 

The growth in foreign currency reserves, combined with growth in domestic consumption, helped many emerging 

economies soften the impact of the global economic downturn.

Chart 7: 2022 Public Debt as % of GDP

Source: IMF
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Chart 8: Foreign Currency Reserve ($ Billion) (As of 6/30/2023)

Source: IMF

Along with the growing economic power of emerging markets as a whole, the capital markets in several emerging 

countries have also evolved over the past decade. Data from The World Federation of Exchanges shows that, 

assessed by total market capitalization and trade value, China’s two major stock exchanges, if combined, rank the

third-largest in the world after the New York Stock Exchange and NASDAQ. Other emerging countries such as 

India, Saudi Arabia, South Korea, Taiwan, and South Africa also claimed spots within the top-20 stock exchanges 

at the end of 2022. With the improved liquidity and transparency, lower transaction costs, and improved property 

rights and legal protections, institutional investors have become more comfortable investing in emerging markets. 

While the case for investing in emerging markets has become more compelling, emerging markets have 

experienced, and, in our opinion, will experience greater volatility than that of developed markets. Some of the 

risks in emerging markets include:

• International governmental risk (rogue regimes, expropriation of assets, etc.)

• Slowing down or a reversal of favorable economic and monetary policies

• A higher willingness based on historical experience to default or devalue their currencies

• Growth that is heavily dependent on or tied to growth in developed markets (exports, commodities, etc.)

While several of these risks are not easily quantified, we do believe investors get compensated for these risks on a 

risk-adjusted basis. The volatility of emerging markets has been higher than developed markets over the last 

decade or two, but emerging markets have been able to keep pace with developed markets on a risk-adjusted 

basis.

Table 43 shows Aon’s expected returns and risk (volatility) for developed and emerging markets over the longterm. These represent 30-year forward looking expectations.
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Table 43: Aon 30-Year Capital Market Expectations (As of 6/30/2023)

Expected 

Return

Expected 

Risk

Expected 

Sharpe Ratio

Developed Markets 7.3% 20.8% 0.19

Emerging Markets 7.7% 24.5% 0.18

As shown, we expect emerging markets to provide a higher return as compared to developed markets, but at a 

materially higher level of risk.

As for non-U.S. small cap stocks, because commonly used benchmarks for international equity, MSCI EAFE and 

MSCI ACWI ex USA indices, do not contain small cap stocks, we believe that non-U.S. small cap stocks are underinvested relative to their U.S. small cap peers. Additionally, relative to larger peers, smaller companies in the IMI are 

covered by a smaller pool of sell-side analysts. This under-investment and lack of analyst coverage may lead to less 

market efficiency and a greater return potential. 

Non-U.S. small cap stocks are also tied more to their local economies than to the global economy. The lack of 

connection to the global economy should provide lower correlations to the broader equity market. Consequently, 

we believe that adding non-U.S. small cap exposure will likely improve the Sharpe ratio of the overall non-U.S. 

equity portfolio.

The broad non-U.S. equity market is of significant market size, and indexed assets under management are large. 

The broad non-U.S. equity market provides diversification across country, sector, and market capitalization. By 

broadening the exposure of the I Fund, there would be an increase in stock coverage by 1,510 stocks in the case of 

the MSCI ACWI ex USA Index and 5,912 stocks in the case of the MSCI ACWI ex USA IMI as of July 31, 2023.

Overall, we favor a benchmark that includes Canada, emerging markets, and international small cap equities as it 

provides broader coverage of the international equity markets, more fully captures global growth, and provides 

enhanced diversification of the international equity portfolio. From a theoretical standpoint, we recommend that 

clients utilize the MSCI ACWI ex USA Index or the MSCI ACWI ex USA IMI, as these indices provide complete 

coverage of the global equity opportunity set.

However, as we consider an appropriate benchmark for the I Fund, it is important to take into account the Thrift 

Savings Plan’s unique circumstances. These include:

• Need to provide daily liquidity 

• Transition cost and planning

• Securities lending income 

• Administrative and other complexities: An asset class may have investment merits to be considered for 

inclusion in an investment line-up, however it is also important to consider the trade-offs of implementation 

considerations such as unusual cost and custody issues, international governmental risk, and administrative 

and operational complexities.
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Considerations in Expanding the I Fund Benchmark to Include Emerging Markets

As we review the I Fund’s current benchmark, the MSCI EAFE Index, the case to include Canada is very compelling 

and obvious given that it is the fourth-largest equity market outside the U.S. and a country that participants should 

have familiarity with. 

The case for the inclusion of emerging markets and international small cap equities, while compelling, we will 

further investigate within this report. The foremost consideration in expanding the I Fund benchmark to include 

Canada, emerging markets, and international small cap equities is the need to provide daily liquidity. A sufficient 

level of cash must be maintained in the fund to meet participant withdrawal needs. As an example, the investment 

managers of the I Fund hold approximately 0-3% of the Fund’s assets in cash in order to meet routine liquidity 

needs. The cash is equitized to the markets using futures contracts or other derivatives. While the use of 

derivatives minimizes the cash drag on the portfolio, they may not always track the benchmark precisely (e.g., if 

multiple country futures contracts are used to track a benchmark) or may not have adequate levels of liquidity. This 

could lead to potential sources of tracking error.

Liquidity

We reviewed the TSP I Fund’s daily cash flow activity over a four-year period ending June 30, 2023. As of June 30, 

2023, the I Fund’s assets stood at $72.6 billion, as compared to $50.0 billion in June 2019. This period was 

characterized by elevated volatility across most major capital markets.

We focused our attention on withdrawals out of the I Fund over the four-year period in order to assess the ability to 

provide liquidity on a daily basis to meet participant redemption requests. The average daily net withdrawal over 

the period was $125 million, which on an asset base of $73 billion represents about 0.2% of assets. The largest 

single cash withdrawal out of the I Fund was $931 million, which occurred on March 11, 2022. This cash flow 

represented approximately 1.4% of the I Fund’s assets as of that day. 

While the average daily cash withdrawal and the largest single day withdrawal are well within the cash buffer that it 

maintained to meet ongoing liquidity, as mentioned earlier, withdrawals tend to spike around periods of poor 

market performance. We reviewed aggregate cash flows over consecutive days of withdrawals out of the I Fund 

over a four-year period. There were 14 instances when aggregate withdrawals over consecutive days exceeded 

$400 million over this period and 4 instances when aggregate withdrawals over consecutive days exceeded $500 

million. Chart 9 shows the daily net withdrawal activity over the four-year period. 

As shown in Chart 9, there has been five instances where cash flows over consecutive days equaled approximately 

$950 million – 1.5 billion or 2% of the I Fund during that time period (which occurred between 3/23/2020 –

3/30/2020; 12/30/2020 – 1/6/2021; 5/17/2022 – 5/26/2022; 11/8/2022 – 11/10/2022; 3/20/2023 –

3/27/2023), illustrating a significant outcome, however still falls within the 0-3% cash allocation that the TSP’s 

international equity managers generally hold to meet liquidity needs. Consistent selling or buying in the market can 

increase transactions costs during periods of increased volatility. Based on historical cash flow data, we have not 

seen net outflows reach levels that would cause us concern.
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Chart 9: I Fund Daily Net Cash Outflow Activity ($ Millions)

As we think about the inclusion of emerging markets into the benchmark for the I Fund, it is critical to take into 

consideration the liquidity needs of the TSP. While the liquidity in emerging markets has generally improved, we 

typically see a flight to quality from emerging markets (and other riskier markets) in times of market stress. 

Liquidity can be adversely impacted in times of market stress. 

Based on discussions with the TSP’s largest index fund manager, they indicate that they are normally able to trade 

about $250 million to $300 million on behalf of the I Fund in emerging market flow on a daily basis, without 

impacting the prices of securities adversely. 

Chart 10 shows the withdrawals over consecutive days for the I Fund at 28% of the actual cash flow. Emerging 

markets represent approximately 28% of non-U.S. equity markets and hence this analysis gives us a sense for the 

potential extent of emerging market flows.

$0

$200

$400

$600

$800

$1,000

$1.5B over 6 Days

$959M over 4 Days $1.5B over 

8 Days

$974M over 

6 Days

$980M over 3 Days
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Aon Investments USA, Inc. 58

Chart 10: I Fund Daily Net Cash Outflow Activity Scaled to 28% ($ Millions)

While the average cash outflow (from the I Fund scaled to 28%) over this period appears to be well within the 

$250 - $300 million range that managers indicate that they are able to comfortably trade in emerging markets, 

there are two instances where the cash flows over consecutive days exceeded the $250 - $300 million range to 

$417 and $433 million (which occurred between March 30, 2020 and May 26, 2022).

Further, it is important to note that these cash flows represent I Fund (developed market) cash flows scaled to 

28%. The inclusion of emerging markets in the I Fund benchmark could result in a higher level of cash withdrawals 

in times of market stress given the higher volatility of emerging markets. 

During periods of large flows, futures can be used to quickly gain or divest exposure. When expanding the 

coverage of the I Fund to track to the MSCI ACWI ex USA IMI, the investment strategy is to fully replicate the 

benchmark by owning the majority of the stocks in the benchmark, if not all. However, due to liquidity challenges in 

certain markets, the small cap portion may be optimized via sampling at any given time. Since the small cap 

segment of the index represents 14%, the impact on tracking error is expected to be marginal. Overall, liquidity is 

managed through the use of the I Fund’s cash buffer and other tools such as optimization and derivatives. 

Derivatives play a role in managing I Fund liquidity during time periods where local foreign markets are closed. The 

existence of a liquid market for emerging market futures contracts also allows index fund managers to manage 

cash flows more efficiently, resulting in tighter tracking of the Index. Derivatives also mitigate daily tracking error 

since futures contracts are traded during U.S. market hours and incorporate fair value pricing (FVP). FVP is an 

adjustment made by passive providers to align the closing price or NAV of a passive fund with the current value of 

that Fund's underlying holdings. FVP is typically used in international equity funds that are priced at the U.S. 

market close. Therefore, there may be price adjustments made to foreign securities from the local market close to 

the U.S. market close due to events or news that impacted the securities’ price after the local market close. In 

order to mitigate tracking error, U.S. index managers typically trade closer to the U.S. market close. Since 

international local markets are generally closed by then, the manager could utilize futures contracts to get 

$0

$50

$100

$150

$200

$250

$300
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Aon Investments USA, Inc. 59

exposure to the equity market or could close out of future contracts in the event liquidity is needed. Over time, the 

index manager could close out of futures contracts and rebalance the portfolio through physical securities. 

Therefore, the liquidity of the derivatives market for emerging markets is critical in this analysis. In September

2023, emerging market futures contracts traded approximately $4.0 billion a day. 

Futures exposure is not available for international small cap exposure; therefore, small cap exposure would be 

obtained through physical securities and potentially ETF instruments to assist in cash management needs. The 

daily tracking error, when not owning international small cap, is estimated to be 0.04% a day based on an 

annualized tracking error of 0.60%. We believe the inclusion of emerging markets and international small cap 

equities in the I Fund would not hinder the ability to meet the TSP’s daily liquidity needs. The TSP’s historical daily 

cash flow activity over the last four years has been at reasonable levels where the activity can be traded in 

emerging markets without adversely impacting the prices of securities. As mentioned earlier, the trading would 

likely be conducted through derivatives, a market with ample liquidity. In the event cash flow activity is above the 

$250-$300 million trade size for emerging markets within the I Fund, the index manager may have to trade futures 

contracts across a longer time period than trading at the market close, which may increase the tracking error of the 

mandate.

Transaction Costs & Planning

Table 44 details the estimated costs involved in transitioning the Fund’s benchmark from the MSCI EAFE Index to 

the indices under review. The estimated cost in dollars is based on expected trading costs and the asset value of 

the I Fund as of July 31, 2023, which was $75 billion.

Table 44: Trading Costs for Multi-Tranche Transition (As of September 2023)

Source: BlackRock

Note: Bps = basis points = 100th of a percent; FX = foreign exchange

The transaction cost associated with transitioning the I Fund’s benchmark from the MSCI EAFE Index to the MSCI 

ACWI ex USA IMI is expected to be about 11.7 bps or approximately $88 million on average. Depending on market 

activity at the time of the transition, we would expect the actual cost of transition to range between a cost of 29.7

bps ($222.8 million) or a gain of 6.3 bps ($47.3 million) about 67% of the time. We believe that these transition 

MSCI World ex USA IMI MSCI ACWI ex USA Index MSCI ACWI ex USA IMI MSCI ACWI IMI ex USA ex 

China ex Hong Kong Index

Bps $ Bps $ Bps $ Bps $

Commissions 1.1 8,250,000 2.3 17,250,000 2.8 21,000,000 2.6 19,500,000

Taxes 1.2 9,000,000 1.9 14,250,000 2.7 20,250,000 2.2 16,500,000

Bid/Ask Spread 0.4 3,000,000 0.5 3,750,000 0.7 5,250,000 0.6 4,500,000

Market Impact 2.2 16,500,000 3.4 25,500,000 4.2 31,500,000 3.8 28,500,000

FX Cost -- -- 1.2 9,000,000 1.3 9,750,000 1.4 10,500,000

Mean Expected Cost 4.9 $36,750,000 9.3 $69,750,000 11.7 $ 87,750,000 10.6 $ 79,500,000

Opportunity cost +/- 7.0 +/- $52,500,000 +/- 17.0 +/- $127,500,000 +/- 18.0 +/- $135,000,000 +/- 13.0 +/- $97,500,000
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 60

costs are reasonable given the overall shift from developed markets to emerging markets, as well as into 

international small cap.

We recommend that the transition be conducted in a phased, methodical manner over a period of time as liquidity 

opportunities present themselves, as opposed to a transition in a day or a few days. Rebalancing from the MSCI 

EAFE Index to the MSCI ACWI ex USA IMI would result in approximately a 55% overlap between the legacy and 

target portfolios. To help lower bid/ask spread and market impact costs associated with the transition, it is 

expected that 16 trading tranches would be required to achieve 100% of the rebalance. The tranches would occur 

every 5 days over the span of 4 months. Each tranche would be built to match the composition of the target index. 

Tranche size would depend on the liquidity of the required rebalance trade with an expected size of $4.7 billion. 

We believe the transition should be staggered across the two I Fund investment managers where manager B 

(manages 20% of the I Fund) can complete the transition of their portfolio first before manager A (manages 80% 

of the I Fund) begins their transition. This avoids the case where both managers are competing for liquidity to 

complete their trades. The staggered approach could be executed over the 16-tranche transition period.

The analysis assumed the transition trading would be executed at the same commission levels that the TSP 

currently pays to execute global equity trades. Therefore, the analysis assumed the TSP would not pay additional 

commissions over what they generally would incur.

We recommend using a transition account to build each tranche; therefore, assets for each tranche would be 

transferred out of the legacy account to the transition account. Once the tranche is built to match the composition 

of the target index, assets would be transferred to the target portfolio account. Performance would be tracked 

separately for the legacy, target, and transition accounts and participants would experience the return of all three 

accounts as the performance of all three accounts would be rolled up into a composite return. In this fashion, the 

historical return stream of the legacy I Fund may be maintained and not impacted by the transition. The legacy 

portfolio would continue to track the MSCI EAFE Index, and the target portfolio would track the new target 

benchmark. This would be feasible since the transition would be done in multiple tranches and each tranche would

be rebalanced in the transition account and then transferred to the target portfolio. This approach is also cleaner 

from a portfolio management standpoint, since the portfolio manager would manage the legacy and target portfolio 

accounts, while the transition management team would manage the transition account. 

In this scenario, the performance benchmark during the transition period would generally be daily asset weighted 

between MSCI EAFE Index and the target benchmark. The legacy portfolio would be benchmarked against the 

MSCI EAFE Index, and the transition and target portfolio accounts would be benchmarked against the target 

benchmark. The tracking error between the I Fund’s performance and the new benchmark would be due to the 

transaction costs associated with the benchmark change.

The below outlines a schematic of the staggered transition approach.
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Aon Investments USA, Inc. 61

The main considerations in this scenario are the setup of securities lending for an additional account (target

portfolio account) and the additional operational step in the movement of assets as securities would need to be 

moved to the transition account and then to the target portfolio. We believe the benefits outweigh the 

considerations given the portfolio manager accounts would be isolated from the transition account, performance 

benchmarking could be easily tracked, and the historical MSCI EAFE Index return stream should not be impacted 

by the transition.

Another option is to conduct the rebalancing in the legacy account where the existing portfolio is rebalanced over 

multiple tranches and each tranche would be transferred to the target portfolio as they would be completed. Having 
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Aon Investments USA, Inc. 62

two accounts per manager instead of three may result in less operational work given assets will only need to be 

transferred to the target portfolio. If the rebalance takes place in the legacy portfolio, transition related 

performance is not easily tracked and historical strategy performance for the I Fund could be impacted. The

portfolio manager would manage the transition in the legacy account, and as each tranche is completed, the assets 

would transfer to the target portfolio account. 

Performance benchmarking in this scenario would not be as clean given the legacy assets would be managed in 

the same account as the transition is taking place. Therefore, the legacy account including the transition assets 

would be benchmarked against the MSCI EAFE Index, and the target portfolio would be benchmarked against the 

target benchmark.

A benefit of this scenario relative to the first scenario is fewer custodial asset movements. We believe the

considerations outweigh the benefits largely due to the challenges around performance benchmarking.

Additionally, the transition assets would not be benchmarked against the target benchmark since the assets would 

be held in the legacy account. However, major passive providers typically have the capabilities to conduct the 

transition in the legacy account if desired.

Securities Lending

The market demand for lending emerging markets and international small cap equity is generally greater than 

developed large and mid cap stocks. The higher demand is primarily driven by the lack of supply of small 

capitalization securities available for lending. The same reason applies to emerging markets, although demand is 

not as prominent. Other reasons for the higher demand for these two segments are the higher volatility associated 

with these two markets and less public information compared to developed large and mid cap stocks. 

The following tables outline the expected yield and utilization changes as a result of a move from the MSCI EAFE

Index to the MSCI World ex USA IMI, MSCI ACWI ex USA Index, MSCI ACWI ex USA IMI, and MSCI ACWI IMI ex 

USA ex China ex Hong Kong Index. The yields referenced below incorporate both intrinsic and reinvestment yield 

and only account for the net yield to the TSP. Overall, the below table illustrates the additional securities lending 

income incurred as the opportunity set is expanded to include exposure to Canada, international small cap, and 

emerging markets. The MSCI ACWI IMI ex USA ex China ex Hong Kong Index generated the highest expected yield 

and percentage out on loan followed by the MSCI ACWI ex USA IMI. We applied the average daily market value of 

the I Fund to the below estimated yields in order to derive the estimated yield in dollars. The following table 

illustrates that across each of the last four calendar years, the income to the TSP is estimated to have been 

between 1.8x to 2.4x more if the I Fund tracked the MSCI ACWI IMI ex USA ex China ex Hong Kong Index instead 

of the MSCI EAFE Index, which is 0.2x more than the MSCI ACWI ex USA IMI. Overall, the marginal increase in 

securities lending income between the MSCI ACWI IMI ex USA ex China ex Hong Kong Index and the MSCI ACWI 

ex USA IMI was driven by the ability to lend more in France, and to a lesser extent in South Korea, Taiwan, and 

Thailand, which offset the lending income incurred by the H-Shares in both China and Hong Kong.
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Table 45: Securities Lending Yield Estimates

Yield to TSP (bps)

MSCI EAFE Index

MSCI World ex 

USA IMI

MSCI ACWI ex 

USA Index

MSCI ACWI ex 

USA IMI

MSCI ACWI IMI 

ex USA ex China 

ex Hong Kong

Index

2020 2.6 5.3 3.6 5.9 6.3

2021 2.9 4.3 3.9 5.9 6.2

2022 3.2 4.8 3.8 6.1 6.7

2023 (YTD)1 4.4 6.0 4.6 7.1 8.0

Yield to TSP ($ millions)

MSCI EAFE Index

MSCI World ex 

USA IMI

MSCI ACWI ex 

USA Index

MSCI ACWI ex 

USA IMI

MSCI ACWI IMI

ex USA ex China 

ex Hong Kong

Index

2020 19.2 38.5 25.9 42.9 45.7

2021 21.0 31.4 28.7 42.6 44.9

2022 23.1 34.7 27.8 44.4 48.6

2023 (YTD)1 31.9 43.5 33.6 51.5 58.0

On-Loan (%)

MSCI EAFE Index

MSCI World ex 

USA IMI

MSCI ACWI ex 

USA Index

MSCI ACWI ex 

USA IMI

MSCI ACWI IMI

ex USA ex China 

ex Hong Kong

Index

2020 1.6% 2.2% 2.1% 2.7% 2.9%

2021 1.4% 1.9% 1.9% 2.4% 2.8%

2022 2.2% 2.7% 2.4% 3.0% 3.6%

2023 (YTD)1 2.7% 3.2% 2.9% 3.5% 4.4%

Source: BlackRock

12023 YTD is annualized data through July 31, 2023

Note: The above analysis assumes all markets are held in a separate account except Taiwan, which is assumed to be held in a commingled for 

Manager B, since a second separate account cannot be opened. Manager B holds 20% of the I Fund. Bps = basis points = 100th of a percent

Operational Considerations

Please note the following custody considerations apply to international strategies managed in separate accounts. 

Most of the world's largest custodians do not have custody operations in every country, requiring these 

organizations to contract with a local custodian that does have these local capabilities. Requiring global custody 

services introduces additional risks including:

• Failure or default of sub-custodian that could result in losses if proper segregation of securities and cash is not 

in place
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• Lack of contingency planning and/or sufficient contractual protection by main custodian for adverse 

organizational events

• Settlement and other operational-related risks if the sub-custodian does not have strong controls & processes 

in place

We believe the above risks are generally mitigated across the world’s largest custodians since the custodian is 

responsible for selecting the foreign custodian (sub-custodian), which is typically based on a very robust, in depth, 

and complex due diligence process. Custodians also monitor their sub-custodian relationships on an ongoing basis 

to ensure financial stability, monitor changes in personnel, and identify any changes to the business (technology, 

client service structure, etc.) that warrant a response.

Settlement Risk

Settlement cycles vary across market; settlements tend to range from T+0 to T+3. This can cause out of market 

balances, overdrafts, or leverage. Passive managers may use broker-facilitated short settlements and their foreign 

exchange trading desk to ensure settlement cycles match up.

Local Account Openings 

A majority of market accounts are expected to take no longer than 3 weeks to open with an exception to six 

markets. China is projected to take up to 3 months to open. Saudi Arabia, Taiwan, Qatar, and Kuwait are projected 

to take 3+ months to open. India is projected to take up to 6 months to open. Therefore, the majority of the 

markets can be open during the account setup process before asset transition begins. During the 6 month setup, 

passive managers can obtain exposure to the Indian market by using ADRs/GDRs, ETFs, and derivatives, or they 

can potentially omit. This could cause potential delays in a full replication strategy and possibly higher tracking 

error.

Transferability of Stocks

In emerging markets, several countries do not allow for shares to be transferred between accounts, nor do they 

allow for change of beneficial ownership. If the market does allow assets to be transferred, there is generally an 

associated charge around exchange fees, stamp taxes, registration fees, etc.

Restricted Currencies

There are emerging market currencies that are restricted, which means currency trades can only be traded by the 

local sub-custodian, whereas in developed markets, currency trades can be auctioned to a number of banks in 

order to receive the most favorable rate. Restricted currencies can result in higher tracking error. Major passive 

providers tend to have a rigorous due diligence framework before utilizing local foreign exchange agents. They also 

conduct ongoing monitoring and review of foreign exchange executions.
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Aon Investments USA, Inc. 65

Local Tax Advisor

The client is generally responsible for hiring local tax advisors in some emerging markets such as Taiwan and India. 

Passive providers may assist the TSP in hiring a local tax advisor in these countries depending on the account 

structure the TSP has in place. Given the TSP’s existing account structure, the passive manager would generally 

provide a meaningful amount of assistance in hiring a local tax advisor in these countries.

Foreign Ownership Limits

International companies may impose foreign ownership limits on their stock. Passive managers tend to optimize 

around foreign ownership limits. Foreign ownership limitations can result in potentially higher tracking error.

Repatriation Issues

In markets where repatriation issues exist, such as Egypt, custodial standing instructions may be used to begin the 

repatriation process. Passive managers may also choose to reduce the size of the fund’s exposure to such a 

country to mitigate the risk of delayed repatriation. This can result in a potential delay in receiving proceeds in USD 

and thus can result in potentially higher tracking error.

International Governmental Risk

International Governmental risk is managed on a case-by-case basis, in consultation with passive providers. 

Passive managers may use various strategies to mitigate emerging market governmental risk to the extent 

possible. One example is shifting exposure from local currency names to depository receipts to mitigate liquidity 

risk in a market that may be at risk for capital restrictions/sanctions.

Overall, international governmental risk has increased when investing in emerging markets in recent years given a 

range of events such as investment restrictions on sensitive Chinese technology sectors, delisting of Chinese 

companies, and sanctions on Russian securities due to the Russia-Ukraine conflict. 

These types of unforeseen events can incur transaction costs and may experience performance and volatility 

swings. For example, the announcement of investment restrictions can cause the value of a stock to decline at a 

time where the investor is forced to sell. Additionally, even if the investment restriction is on a set of securities or 

sectors, the negative sentiment generally has a broader impact on the performance of the country for a certain 

period of time. Given the asset size of the I Fund, the forced selling of restricted investments could incur higher 

than average market impact costs due to liquidity challenges.

Account Timeline and Documentation

Table 46 lists the estimated time frame of the account opening process for each country. Most market accounts 

are expected to take no longer than 3 weeks to open with an exception to six markets that make up 18% of the 

MSCI ACWI ex USA IMI (bolded in the table). China, Taiwan, and Qatar are projected to take up to 3 months to 
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 66

open. Saudi Arabia and Kuwait are projected to take 3+ months to open, and India is projected to take upwards of

6 months to open.

Table 46: Custody Account Timeline

Global Market Acct. Open Timeframe1 Global Market Acct. Open Timeframe

Brazil 3-5 days Mexico 1-2 days

Canada 1-2 day Peru 5-7 days

Chile 2-3 days Philippines 1-2 days

China 3 Months Poland 2-3 weeks

Colombia 10-12 days Qatar2 3-4 months

Czech Republic 1-2 days Saudi Arabia2 3+ months

Egypt 3-5 days South Africa 1-2 days

Greece 1-2 days South Korea 10-13 days

Hungary 3 days Taiwan2 3-4 months

India 6-7 months Thailand 1-2 days

Indonesia 2 days Turkey 7-10 days

Kuwait2 3+ months UAE2 3-12 days

Malaysia 2-7 days

Source: State Street 

1These timeframes are based on receipt of documents by the sub-custodian in good order. Days referenced represent business days.

2The timeframe to open these specific markets for BlackRock is expected to be between 2-4 weeks once all documentation is complete and 

submitted to the local markets.

Country specific custodial documentation is required in order to trade in international markets. The table on the 

following page outlines the required documentation for registration by emerging market country. Given the TSP’s 

existing account structure, the TSP’s responsibility should be reduced as the passive manager would generally take 

on some of the market opening responsibilities. 

Table 47 outlines the account structures that would be used to open the Canadian and emerging market accounts 

for the I Fund. Regardless of the account structure, the TSP would always be considered the legal and beneficial 

owner of the assets. However, in the case where the account structure is an omnibus account, the TSP’s existing 

manager may be the registered owner of the assets on the local exchange. We have also outlined which securities 

are permitted to be transferred in-kind to another account held in the name of the TSP in the event the TSP were to 

move to an independent custodian in the future. There are conditions to consider that are country specific and may 

include increased documentation, disclosure to the local regulator, pre-approval to trade, and fees. 
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Aon Investments USA, Inc. 67

Table 47: Account Structure

Market Manager A Manager B In-Kind Permitted

Brazil Segregated Segregated Yes – conditions apply

Canada Segregated Omnibus Yes

Chile Segregated Segregated Yes – conditions apply

China Segregated Segregated No

Colombia Segregated Segregated Yes – conditions apply

Czech Republic Segregated Segregated Yes

Egypt Segregated Segregated Yes – conditions apply

Greece Segregated Segregated Yes 

Hungary Segregated Segregated Yes

India Segregated Segregated Yes – conditions apply*

Indonesia Segregated Segregated Yes – conditions apply

Kuwait Segregated Segregated Yes – conditions apply *

Malaysia Segregated Segregated Yes – conditions apply

Mexico Segregated Omnibus Yes

Peru Segregated Segregated Yes – conditions apply

Philippines Segregated Segregated Yes – conditions apply

Poland Segregated Segregated Yes 

Qatar Segregated Segregated Yes – conditions apply*

Saudi Arabia Segregated Segregated Yes – conditions apply *

South Africa Segregated Omnibus Yes 

South Korea Segregated Segregated Yes – conditions apply

Taiwan Segregated Segregated Yes – conditions apply*

Thailand Segregated Segregated Yes

Turkey Segregated Segregated Yes 

UAE Segregated Segregated Yes – conditions apply

*The securities within the five markets that Manager B would hold in a commingled fund cannot be traded in-kind.

Source: BlackRock and State Street
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Benchmark Recommendation for the I Fund

Consider broadening the opportunity set of the I Fund by replacing the MSCI EAFE Index with an index that 

includes coverage of Canada, international small caps, and emerging markets.

Our recommendation is based on the following reasons:

• The MSCI indices remain the most popular indices for U.S. based institutional investors investing in overseas 

equity markets.

• The transition costs associated with the change in the I Fund benchmark are reasonable. 

• Market Exposure:

○ Canada is the fourth-largest equity market in the world, representing 7.5% of the developed non-U.S. 

equity opportunity set.

○ Emerging Markets represents 27.8% of the international non-U.S. equity investable universe. 

○ International small cap equities represent 13.7% of the international non-U.S. equity investable universe

• Liquidity:

○ We believe the inclusion of emerging markets and international small cap equities in the I Fund would not 

hinder the ability to meet the TSP’s daily liquidity needs. 

○ Overall, liquidity is managed through the use of the I Fund’s cash buffer and other tools such as 

optimization and derivatives. 

○ Additionally, historical daily cash flow assessment scaled to 28% illustrates cash flow activity was at 

reasonable levels to be traded in emerging markets without adversely impacting the prices of securities.

• Securities Lending:

○ The MSCI ACWI ex USA IMI and MSCI ACWI IMI ex USA ex China ex Hong Kong Index generated the 

highest expected yield and percentage out on loan.

○ Across each of the last three calendar years, the income to the TSP is estimated to have been at least 1.9x 

more if the I Fund tracked MSCI ACWI ex USA IMI or MSCI ACWI IMI ex USA ex China ex Hong Kong Index

instead of the MSCI EAFE index.

• Administrative and Other Operational Complexities: 

○ Overall, operational complexity has increased when investing in emerging markets in recent years given a 

range of events such as investment restrictions on sensitive Chinese technology sectors, delisting of 

Chinese companies, and sanctions on Russian securities due to the Russia-Ukraine conflict. 

○ These types of unforeseen events can incur transaction costs and may cause performance and volatility 

swings. For example, the announcement of investment restrictions can cause the value of a stock to 

decline at a time where the investor is forced to sell. Additionally, even if the investment restriction is on a 

set of securities or sectors, the negative sentiment generally has a broader impact on the performance of 

the country for a certain period of time. Given the asset size of the I Fund, the forced selling of restricted 

investments could incur higher than average market impact costs due to liquidity challenges.

○ Tensions between the U.S. and China have been building, with the latest developments being the 

technology investment restrictions and export ban of US technology to China. If the current investment 
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 69

restrictions on China are the beginning of further restrictions spanning China and Hong Kong investments, 

this level of uncertainty can outweigh the benefits of expanding the I Fund to include China and retaining 

exposure to Hong Kong, based on the TSP’s specific circumstances. 

• Conclusion 

○ Expanding the opportunity set of the I Fund to the MSCI ACWI IMI ex USA ex China ex Hong Kong Index

would be viewed as a more efficient portfolio than the MSCI EAFE Index, benefiting from its broader 

opportunity set across the number of securities, market cap, and countries. 

– The index has performed favorably over the short- and long-term periods relative to the MSCI EAFE

Index with favorable risk-adjusted returns over-the long-term.

– The market cap coverage increases from 55% to 90% by replacing the MSCI EAFE Index with the 

MSCI ACWI IMI ex USA ex China ex Hong Kong Index.

○ We recommend the TSP broaden the opportunity set of the I Fund by replacing the MSCI EAFE Index with 

the MSCI ACWI IMI ex USA ex China ex Hong Kong Index, taking into consideration the TSP’s unique 

circumstances. We recommend future reviews reassess the TSP’s unique circumstances to determine 

whether further expansion of the benchmark is warranted, considering how administrative and operational 

complexities evolve over time.
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 70

Appendix

Annual Returns

Table 48: Annual Return History – U.S. Equity (%)

The table below details the annual return histories of the following U.S. equity indices.

S&P 500 Index Russell 1000 Index Russell 2000 Index DJ U.S. Completion TSM

Index

1979 -- 22.3 43.1 --

1980 -- 31.9 38.6 --

1981 -- -5.1 2.0 --

1982 -- 20.3 24.9 --

1983 -- 22.1 29.1 --

1984 -- 4.8 -7.3 --

1985 -- 32.3 31.0 --

1986 -- 17.9 5.7 --

1987 -- 2.9 -8.8 --

1988 -- 17.3 25.0 20.8

1989 31.7 30.4 16.3 24.1

1990 -3.1 -4.2 -19.5 -13.2

1991 30.5 33.0 46.0 43.2

1992 7.6 8.9 18.4 11.7

1993 10.1 10.2 18.9 14.5

1994 1.3 0.4 -1.8 -2.6

1995 37.6 37.8 28.5 33.6

1996 23.0 22.4 16.5 17.1

1997 33.4 32.9 22.4 25.5

1998 28.6 27.0 -2.5 8.7

1999 21.0 20.9 21.3 35.5

2000 -9.1 -7.8 -3.0 -15.7

2001 -11.9 -12.4 2.5 -9.4

2002 -22.1 -21.7 -20.5 -17.8

2003 28.7 29.9 47.3 44.0

2004 10.9 11.4 18.3 18.0

2005 4.9 6.3 4.6 10.0

2006 15.8 15.5 18.4 15.3

2007 5.5 5.8 -1.6 5.4
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S&P 500 Index Russell 1000 Index Russell 2000 Index DJ U.S. Completion TSM

Index

2008 -37.0 -37.6 -33.8 -39.0

2009 26.5 28.4 27.2 37.4

2010 15.1 16.1 26.9 28.5

2011 2.1 1.5 -4.2 -3.7

2012 16.0 16.4 16.4 17.9

2013 32.4 33.1 38.8 38.0

2014 13.7 13.2 4.9 7.6

2015 1.4 0.9 -4.4 -3.4

2016 12.0 12.1 21.3 15.8

2017 21.8 21.7 14.6 18.1

2018 -4.4 -4.8 -11.0 -9.6

2019 31.5 31.4 25.5 27.9

2020 18.4 21.0 20.0 32.2

2021 28.7 26.5 14.8 12.4

2022 -18.1 -19.1 -20.4 -26.6
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Table 49: Annual Return History – Fixed Income (%)

The table below details the annual return histories of the following fixed income indices.

Bloomberg U.S. Aggregate Index Bloomberg U.S. Universal Index FTSE US BIG Bond Index

1977 3.0 -- --

1978 1.4 -- --

1979 1.9 -- --

1980 2.7 -- --

1981 6.2 -- 6.5

1982 32.6 -- 31.8

1983 8.4 -- 8.2

1984 15.1 -- 15.0

1985 22.1 -- 22.3

1986 15.3 -- 15.4

1987 2.8 -- 2.6

1988 7.9 -- 8.0

1989 14.5 -- 14.4

1990 9.0 -- 9.1

1991 16.0 16.4 16.0

1992 7.4 7.5 7.6

1993 9.7 10.4 9.9

1994 -2.9 -3.1 -2.8

1995 18.5 18.5 18.5

1996 3.6 4.5 3.6

1997 9.7 9.8 9.6

1998 8.7 7.3 8.7

1999 -0.8 0.2 -0.8

2000 11.6 10.8 11.6

2001 8.4 8.1 8.5

2002 10.3 9.8 10.1

2003 4.1 5.8 4.2

2004 4.3 5.0 4.5

2005 2.4 2.7 2.6

2006 4.3 5.0 4.3

2007 7.0 6.5 7.2

2008 5.2 2.4 7.0

2009 5.9 8.6 5.1
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Bloomberg U.S. Aggregate Index Bloomberg U.S. Universal Index FTSE US BIG Bond Index

2010 6.5 7.2 6.3

2011 7.8 7.4 7.9

2012 4.2 5.5 4.2

2013 -2.0 -1.3 -2.0

2014 6.0 5.6 5.9

2015 0.5 0.4 0.5

2016 2.6 3.9 2.7

2017 3.5 4.1 3.6

2018 0.0 -0.3 0.0

2019 8.7 9.3 8.9

2020 7.5 7.6 7.7

2021 -1.5 -1.1 -1.6

2022 -13.0 -13.0 -13.3
Thrift Savings Plan 2023 Benchmark Study

Aon Investments USA, Inc. 74

Table 50: Annual Return History – International Equity (%)

The table below details the annual return histories of the following international equity indices.

MSCI EAFE Index

MSCI World ex USA 

IMI

MSCI ACWI ex USA 

IMI

MSCI ACWI ex USA 

ex China ex Hong 

Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

1970 -11.7 -- -- -- --

1971 29.6 -- -- -- --

1972 36.3 -- -- -- --

1973 -14.9 -- -- -- --

1974 -23.2 -- -- -- --

1975 35.4 -- -- -- --

1976 2.5 -- -- -- --

1977 18.1 -- -- -- --

1978 32.6 -- -- -- --

1979 4.8 -- -- -- --

1980 22.6 -- -- -- --

1981 -2.3 -- -- -- --

1982 -1.9 -- -- -- --

1983 23.7 -- -- -- --

1984 7.4 -- -- -- --

1985 56.2 -- -- -- --

1986 69.4 -- -- -- --

1987 24.6 -- -- -- --

1988 28.3 -- -- -- --

1989 10.5 -- -- -- --

1990 -23.4 -- -- -- --

1991 12.1 -- -- -- --

1992 -12.2 -- -- -- --

1993 32.6 -- -- -- --

1994 7.8 -- -- -- --

1995 11.2 8.9 -- -- --

1996 6.0 5.5 5.0 -- --

1997 1.8 -0.4 -3.3 -- --

1998 20.0 18.3 11.9 -- --

1999 27.0 35.5 37.6 -- --

2000 -14.2 -17.3 -19.5 -- --

2001 -21.4 -21.9 -19.8 -- --
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Aon Investments USA, Inc. 75

MSCI EAFE Index

MSCI World ex USA 

IMI

MSCI ACWI ex USA 

IMI

MSCI ACWI ex USA 

ex China ex Hong 

Kong Index

MSCI ACWI IMI ex 

USA ex China ex 

Hong Kong Index

2002 -15.9 -13.8 -12.9 -- --

2003 38.6 41.2 42.1 40.5 42.0

2004 20.2 21.4 21.9 21.1 22.1

2005 13.5 15.7 17.7 16.5 17.6

2006 26.3 25.6 26.4 25.7 25.5

2007 11.2 11.7 16.1 15.1 14.6

2008 -43.4 -44.0 -46.0 -44.6 -45.1

2009 31.8 35.3 43.6 39.8 41.8

2010 7.8 10.7 12.7 11.1 12.7

2011 -12.1 -12.7 -14.3 -13.3 -13.9

2012 17.3 16.5 17.0 16.4 16.6

2013 22.8 21.6 15.8 16.2 16.6

2014 -4.9 -4.5 -3.9 -4.0 -4.0

2015 -0.8 -2.0 -4.6 -5.7 -4.6

2016 1.0 3.0 4.4 4.4 4.4

2017 25.0 25.2 27.8 25.4 26.4

2018 -13.8 -14.7 -14.8 -14.0 -14.7

2019 22.0 22.9 21.6 21.3 21.6

2020 7.8 8.3 11.1 9.0 9.7

2021 11.3 12.4 8.5 12.4 12.5

2022 -14.5 -15.3 -16.6 -14.6 -15.4
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