Investing November 9, 2017

Institutional Investors See Eight Quarters of Positive Returns

Wilshire’s data shows this was the best one-year return since the year ending June 30, 2014; that year ended with a 15.51% median return and a third consecutive quarter to post an annual return above 10%.

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Institutional assets tracked by the Wilshire Trust Universe Comparison Service delivered a median return of 3.25% for all retirement plan types in the third quarter of 2017.

As Wilshire lays out, this implies a median one-year gain of 11.40%, markedly higher than the low- to mid-single digit returns that had been forecasted by many.

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“This quarter marked the eighth consecutive positive quarter, the longest string of positive quarterly returns for all plan types since June 1998, which marked a string of 14 positive quarters in a row,” explains Robert Waid, managing director, Wilshire Associates. “This quarter’s return boosted the one-year return to 11.40% for the year ending September 30, 2017, compared to 11.31% for the year ending June 30, 2017.”

Wilshire’s data shows this was the best one-year return since the year ending June 30, 2014. That year ended with a 15.51% median return and a third consecutive quarter to post an annual return above 10%.

For context, the Wilshire 5000 Total Market Index returned 4.59% for the third quarter and 18.89% for the year ending September 30, 2017, while the MSCI AC World ex U.S. for international equities rose 6.16% in the third quarter and 19.61% for the year. At the same time, the Wilshire Bond Index also gained 0.63% in the third quarter and 0.96% for the year.

“This resulted in a positive range of median plan-type returns in the second quarter, as the low median return was 2.03% for Taft Hartley Health and Welfare Funds and the high median return was 3.63% for public funds with assets greater than $5 billion,” Waid reports. “For one-year returns, the low median return was 7.15% for Taft Hartley Health and Welfare Funds and the high median return was 12.81% for public funds with assets greater than $5 billion.”

Other data from Wilshire shows, for the third quarter in a row, large public funds outperformed small public funds. Large foundations and endowments continued to have significant exposure to alternatives, with the median exposure rising slightly to 37.94% in the third quarter. All plan types with assets greater than $1 billion experienced median returns of 3.28% for the third quarter and 11.83% for the year ending September 30, 2017, compared to plans with assets less than $1 billion, which experienced median returns of 3.23% for the third quarter and 11.19% for the year.

As Waid further observes, in the third quarter, only Taft Hartley Health and Welfare Funds experienced median returns worse than the 60/40 portfolio, which returned 3.01%. This pulled the median return for all plan types down slightly to 3.25%, but it remained above the 60/40 portfolio for the third consecutive quarter.

“The first quarter of 2017 was notably the first time this happened since the quarter ending June 2015,” Waid notes.

Wilshire TUCS is a cooperative effort between Wilshire Analytics, the investment technology unit of Wilshire Associates Incorporated, and custodial organizations. More research and information is available here. 

Compliance November 9, 2017

Sears Allowed to Sell Real Estate to Fund Pension

According to a Sears announcement, following the making of a $407 million contribution, it will be nearly relieved of the obligation to make further contributions to the pension plans for approximately two years.

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The Pension Benefit Guaranty Corporation (PBGC) and Sears Holdings Corporation have entered into an amendment to their March 2016 Pension Plan Protection and Forbearance Agreement for the company’s two pension plans. The pension plans cover about 100,000 participants.

The amendment, which is expected to close in approximately three months, provides for the release of approximately 140 Sears properties from a ring-fence arrangement created under the 2016 agreement upon, and in exchange for, the payment of approximately $407 million into the Sears pension plans. Sears Holdings expects to raise the $407 million through a sale of properties and/or financing secured by the properties, with such financing to be repaid from the proceeds of sales of the properties over the next two years. Sears is also required to make the approximately $37 million quarterly payment due to the pension plans in December 2017.

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The non-real estate related pension protections in the March 2016 agreement are unaffected by the new agreement.

Following the making of the $407 million contribution, Sears will be relieved of the obligation to make further contributions to the pension plans for approximately two years (other than a $20 million supplemental payment due in Q2 2018), and the remaining properties will no longer be ring-fenced.

Earlier this year, PBGC and Sears amended the March 2016 agreement to accommodate the sale of the Craftsman brand.

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