ESOP vs company common stock — difference in performance

I have 401k. In this, I have ESOP (which consists of company stock that the company buys for me as matching contribution) and company common stock (where I buy company stock myself). Company was always contributing 3.6% of my salary toward ESOP and I was always contributing 1.5% of my salary toward common shares. When I get a statement my ESOP always shows a slightly better performance (for example 11.8% vs 11.55% for 2018). Similar results for other years. However, in years when the stock loses money my ESOP shows a slightly higher loss than the common stock. I thought the common ESOP performance should always follow the common stock performance. Why it is not the case in my case?



The reason is most likely the non ESOP shares are held in a unitized company stock fund. These funds hold a small amount of cash to enhance liquidity in addition to the stock. The ESOP shares are limited to company stock only, no cash. Therefore when the company shares rise the ESOP does a little better and when they fall the ESOP does a little worse because there is no cash in the ESOP to dilute the stock performance.



Thank you. Very interesting. I am also investing into some sort of mutual fund that follows large cap companies  in my 401k. Would the same rule apply — that small amount of cash is normaly held in this mutual fund in addition to stocks?



Yes, also true of mutual funds, but less so for index funds since they attempt to match an index of which cash is not a part.



Alan, thank you very much for your excellent service to the community. Your answers are always on point.



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