Lower Equity Allocation Buoys Pension Returns in Q1

May 14, 2009 (PLANSPONSOR.com) - By one measure pension plans continued to lose value in the first quarter - but less so than in the prior quarter.

According to that measure – the BNY Mellon US Master Trust Universe – the median plan in that sampling posted a -6.07% return for the first quarter of 2009, the sixth straight quarter of negative returns.   But that amount was less than half the loss posted for the fourth quarter of 2008 (-13.10%).   The Universe consists of 578 corporate, foundation, endowment, public, Taft-Hartley and health care plans.

“All segments of the BNY Mellon US Master Trust Universe were in negative territory for the first quarter, but fared quite a bit better than during the final quarter of 2008,” said Greg Stewart, first vice president and regional product manager of BNY Mellon Asset Servicing.   “In fact, the median return for the month of March 2009 was positive (3.68%) as equity markets, domestic and international rallied.   Still, the financial impact of the last 18 months remains apparent in the extended period results, where the median plan posted annualized returns of just 0.20% and 2.68% over five and 10 years, respectively.”

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Other Highlights from the sampling:

  • 97% posted negative results for the period ending March 31, 2009.
  • 86% of the plans posted a return that either matched or exceeded the custom policy return of -7.98% in the first quarter (though BNY Mellon notes that most plans in the sampling have lower allocations to equities than the custom policy and this underweighting in the weaker performing asset class contributes to the outperformance).

The average asset allocation in the BNY Mellon US Master Trust Universe for the first quarter was:

  • US equity 30%,
  • US fixed income 31%,
  • non-US equity 15%,
  • non-US fixed income 1%,
  • alternative investments 10%,
  • real estate 2%,
  • cash 2%, and
  • other (private equity, oil, gas, etc.) 9%.

In fact, US fixed income led all asset classes for the quarter with a median return of 0.36%, outperforming the Barclays Capital U.S. Aggregate Bond Index return of 0.12%.   Non-US fixed income posted a median return of -0.76%, versus the Citigroup Non-US Dollar World Government Bond Index return of -5.74%, according to the report.   US equities lost 9.86%, compared to the Russell 3000 Index return of -10.80%.   Non-US equities fell 11.34%, lagging the MSCI All Country World ex US Index return of -10.62%.   

Health care was the top performing plan type for the first quarter with a -3.45% median return, followed by endowments, foundations, public, Taft-Hartley and corporate plans.  

With a market value of $888.9 billion and an average plan size of $1.5 billion, the BNY Mellon US Master Trust Universe is a fund-level tracking service that can be used to make peer comparisons of both performance and asset allocation results.  

BNY Mellon US Trust Universe Median Plan Returns

Period Ending March 31, 2009
                                                                     Universe        Number of   Participants1Q             2009One-   YearFive- YearsTen-Years
Master Trust Total Fund578-6.07-25.780.202.68
    Corporate Plans245-6.48-26.170.022.60
    Foundations89-5.73-26.950.143.19
    Endowments86-5.47-25.891.373.02
    Public Plans70-6.22-27.040.162.94
    Taft-Hartley Plans49-6.46-24.72-0.742.28
    Health Care Plans20-3.45-17.161.073.14
Universe Custom Composite Benchmark-7.98-30.66-2.16-0.31

 

DC Plans See Widespread Equity Losses in Q109

May 13, 2009 (PLANSPONSOR.com) - Mercer's first-quarter 2009 Defined Contribution Universe Summary found losses in all equity markets during the period.

A Mercer news release said the balanced asset class, using a benchmark of 60% S&P 500/40% Barclays Capital Aggregate Bond Indices, posted a 6.5%-loss. International equity markets, as measured by the MSCI EAFE Index, lost 13.9% during the period.

Mercer data showed the international equity asset class underperformed U.S. equities for the quarter by 290 basis points. Global equities lost 11.9% for the quarter and outperformed international equities by 200 basis points.

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According to Mercer, growth funds outperformed value funds during the first quarter, as the median large cap growth fund posted a loss of 4.7% compared to a loss of 12.9% for the median large cap value fund. The small cap segment of the market trended in the same direction as large cap stocks, as the median small cap growth fund outperformed the median small cap value fund by 710 basis points.

The median large cap fund outperformed the S&P 500 Index by 120 basis points for the first quarter. Small cap funds underperformed their large cap counterparts for the quarter, as the median small cap fund lost 12.9% for the quarter versus a loss of 9.8% for the median large cap fund.

Within the international equity asset class, the median manager outperformed the MSCI EAFE Index by 130 basis points during the quarter. The median emerging markets manager lost 1.4% for the quarter and underperformed the MSCI Emerging Markets Free Index by 240 basis points, according to the Mercer data.

The median core fixed income fund outperformed the Barclays Capital Aggregate Bond Index for the first quarter by 30 basis points. Mercer said the S&P 500 Index lost 11% during the quarter while the fixed income asset class was flat for the quarter, with the Barclays Capital Aggregate Bond Index posting a 0.1% gain. Money market instruments had a zero return, as measured by the three-month T-bill rate.

According to the report, capital market returns remained negative over the long term as losses during the first quarter of 2009 affected results. Over a 10-year time frame, the S&P 500 Index lost 3%, while the Russell 2000 Index gained 1.9%.

The survey report is available at http://www.mercer.us/referencecontent.htm?idContent=1335980 .

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