Investing April 21, 2009

Indexes Outdo Active Managers over Market Cycle

April 21, 2009 (PLANSPONSOR.com) - The year-end 2008 results for the Standard & Poor's Index Versus Active Fund Scorecard (SPIVA) indicate the majority of active fund managers underperformed benchmarks across all categories over the past five years.
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According to an S&P news release, over the five-year market cycle from 2004 to 2008, the SPIVA scorecard shows that the S&P 500 outperformed 71.9% of actively managed large cap funds, the S&P MidCap 400 outperformed 75.9% of mid cap funds, and the S&P SmallCap 600 outperformed 85.5% of small cap funds. S&P says these results are similar to that of the previous five-year cycle from 1999 to 2003.

SPIVA results are similar for international equity and fixed income funds, the announcement said. Benchmark indexes outperformed a majority of actively managed fixed income funds in all categories over a five-year horizon. The five-year benchmark relative shortfall ranged from 2% – 3% annually for municipal bond funds to 1% – 5% annually for investment grade bond funds.

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Among international equity funds, indexes outperformed a majority of actively managed non-U.S. equity funds over the past five years in the four categories studied, including emerging market funds.

“The belief that bear markets strongly favor active management is a myth,” says Srikant Dash, Global Head of Research & Design at Standard & Poor’s, in the announcement. “A majority of active funds in each of the nine domestic equity style boxes were outperformed by indices during the down markets of 2008. The bear market of 2000 to 2002 showed similar outcomes.”

The year-end results are here .

Administration April 20, 2009

SEIU Launches Incentive Pay Initiative

April 20, 2009 (PLANSPONSOR.com) - A union pension plan has hired a law firm to coordinate its campaign to pressure executives of 29 U.S. companies in which it holds stock to look into what the union said was $5 billion worth of improperly granted executive incentives.
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A news release from the Service Employees International Union (SEIU) said the campaign focuses on pay that “may have been tied to poorly understood derivatives and other financial instruments that are now worthless.”

The union is waging the executive pay fight through its SEIU Master Trust, which has total assets of more than $1.3 billion. The union hired the Grant & Eisenhofer law firm to prepare and write letters to the company boards and monitor responses.

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“It’s bad for shareholders and dangerous for our economy when executives profit off of complex derivatives and inflated stocks,” said SEIU President and SEIU Master Trust Chair Andy Stern, in the news release. “The collective choices of top executives to reward themselves despite their failure to deliver a profit on their investments have driven stock prices into the ground, negatively impacted our pension funds, and left our economy in shambles.”

In the letters from the law firm, the union said it argues that corporate compensation payments based on false economic metrics may be recouped, based on U.S. law. The letters further demand that the companies’ boards overhaul their executive compensation structure so top executives do not receive bonuses and other incentivized pay rewards regardless of the companies’ performance.

Since 2005, the top five most highly paid executives at the 29 firms received a total of more than $3.5 billion in cash and equity pay and over $1.5 billion in stock options, the union claimed.

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