A Great Reset? Understanding the 2025 TSP I Fund Moving Foward

[JPH543]

BLUF: The I Fund is a completely different new fund and just has the old name...
Can we even look at past performance for comparisons or for predictions?

Tom's market commentary for today was eye opening; it included a historical look at I fund performance compared to C and that is what spurred me to look into the I fund history deeper so here is a synopsis of my research for the 2024 changes and looking forward to what you all think on the matter.

In 2024 the I fund was in a phased transition and completed its evolution by late 2024, so we now have one full year (in a few days) of this new fund's performance for 2025. To just say it is a benchmark revision, just tracking new diversified markets or simply an expansion would still be an understatement (imo it is a completely new fund).

While yes, the new I fund still has the Europe, Australia and Eastern developed markets that's where the similarities really end.

The old was limited and tracked around 750 companies in 21 countries, the new over 5,500 companies in over 40 different countries and only excludes the US, China and Hong Kong. Of those old 750 companies it was limited to large and mid-cap only, the new includes large, mid and small caps and now includes these 23 emerging market countries (23 out of a total of 24 possible were added).

The old was trying to be low risk, low average growth over time with developed international markets. Well, the new I fund seems to be the complete opposite, it is looking to capitalize on emerging companies from the entire breadth of the international markets with opportunities for high growth with diversity to stabilize and potentially reduce risk. We have all these developing markets in countries that are in different acceleration rates of economic growth now comparatively. (this is just scratching the surface)

So, what little remains of the old fund is really of no consequence on the fund's performance moving forward. As I see it, we got a completely new fund for 2025.

Is 2025's performance just a good year? Do we throw out the sub 6% average rate gain since 2002 and start the tracking over contrary to what TSP is displaying? Can the old fund predict the new funds potential in a meaningful way? Did they really dampen out I fund volatility for long term growth potential or are we going to still see big swings year to year?

-Jeremy

 

[nasa1974]

Good questions. Thanks for the information.

 

[JPH543]

All changes completed as of Sep 2024 per TSP:

 

[JPH543]

While the percentages of the remaining developed market countries reduced and some swapped around from the old I fund to the new, the biggest change looks like the over 50% now in "other", which is now primarily all these new emerging market countries and not just the remaining developed ones anymore.



Source: https://www.morningstar.com/personal-finance/what-know-about-new-tsp-i-fund

 

[JTH]

The biggest issue I have with the I-Fund, is it's very difficult to measure the risk.

Some valid points of contention, I Fund has Mexico, Brazil and many other countries targeted with unpredictable tariffs. While we can track 100% of the C-Fund, and I've tracked down about 95% of the S-Fund, I can't get close to tracking the moving parts of the secret I-Fund. Then add about 48% is from developed countries comprised of old over-regulated non-innovative companies.

So we get to place a bet on the direction of the dollar against 20+ currencies, sprinkle in 3,600+ developed and 2,000+ undeveloped companies, and add in the unstable tariff policies, all while forecasting a Global slowdown in growth.

This has been the dollar's largest half-year decline in 50 years, if we think this can continue, then I guess the I-Fund is a good place to be....

Not too much has changed since I posted this in Aug, the real kick in the pants, there is no ETF that tracks this sans the China, the symbol exist, but it's not tracked by the major platforms. Since they've already made this major change, there's also nothing to prevent them from making more changes, using our money as leverage against other countries.

 

[JPH543]

Thanks for the insight JTH, that's a good point on tough to measure risk and also about the value of the us dollar. From a purely objective point of view the us dollar tends to be overvalued and foreign currencies undervalued, that delta alone allows for the potential of the I fund being a good place to be, as you put it.

Global slowdown in growth is another good point, but I believe that would be an average of reports from bigger developed markets that gather and report this info, no? The potential for higher acceleration rates would be in the smaller emerging economies which seems to be a major part of the fund now is what I found most interesting.

On top of this, now we can't really look at any historic data, is the main point I was weighing in on. So, even more difficulty trying to glean any insight based on just this last year with the new I fund.

 

[tsptalk]

The dollar has always been one of the major catalysts as to whether the I-fund, or US funds are going to perform better. This year was an example, but there seemed to be a little more to it than that because of the size of the difference in return in 2025.

But it's pretty clear, when the dollar is moving up (red boxes), the I-fund doesn't perform well. When the dollar goes down (blue), the I-fund does well.