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Third quarter results dip for institutional plan sponsors

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Institutional plan sponsors lost almost one per cent in the third quarter at the median, according to Northern Trust Universe data.

Longer term performance remains strong, with one-year returns for all plan types averaging 10 per cent or greater.               
 
The Northern Trust Universe tracks the performance of about 300 large US institutional investment plans, with a combined asset value of approximately USD899 billion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.
 
Institutional plans within the Northern Trust Universe suffered a 0.8 per cent quarterly loss due to negative returns in most investment sectors. Corporate ERISA plans had the best relative performance among all plan types with a return of -0.7 per cent. Foundations and endowments had the second best relative performance of the quarter with a return of -0.9 per cent. Public funds showed a net loss of 1.3 per cent.
 
All plan types were down from the second quarter median gain of nearly four per cent. Corporate ERISA plans recorded their first quarterly loss after gaining for four straight quarters. Both public funds and foundations and endowments suffered their first quarterly losses after generating positive returns for eight consecutive quarters.
 
Historically the third quarter has been the worst performing quarter on record, with the average third quarter return over the last 15 years coming in at -0.1 per cent. It is the only quarter in the Northern Trust Universe to average a negative return.
 
Despite the median loss for all plans, institutional plan sponsors have still not experienced two consecutive quarters of negative median returns since the fourth quarter of 2008 and the first quarter of 2009.
 
“During the third quarter risk assets seemed to be out of favor as small-cap US and international stocks, emerging market debt and high yield debt lagged,” says Bill Frieske, senior performance consultant, Northern Trust Investment Risk and Analytical Services. “Overall, market volatility, Federal Reserve tapering and weak international growth contributed to the first loss for many sponsors in several quarters.”
 
Asset allocation per segment was as follows:
 
• Corporate ERISA plans were weighted towards US fixed income (38.4 per cent) and US equity (28 per cent)
• Foundations and endowments were weighted towards private equity (24.4 per cent) and US equity (19.4 per cent)
• Public funds were weighted towards US equity (32.8 per cent) and international equity (23.9 per cent)
 
The smaller loss for corporate ERISA plans was in part due to a large allocation to US fixed income, which returned 0.15 per cent at the median. The performance of foundations and endowments reflected their heavier weighting towards US equities, which experienced a modest decline of -0.8 per cent. Public funds were impacted by a 23.9 per cent allocation to international equity markets, which performed poorly and led to a bigger loss in the quarter.
 
Third quarter Northern Trust Universe results showed that weak returns from the riskiest sectors of the market hurt overall plan sponsor results. Small-cap stock, both US and international, lost nearly eight per cent. Emerging market equity and emerging market debt both lost over three per cent. High yield bonds lost almost two per cent.
 
International stock returns were negative across the board. All segments, including developed or emerging markets, large- or small-cap, all lost between five and six per cent.
 
Equity performance was largely dependent upon capitalisation; returns got materially worse moving from large-cap to small-cap stocks. Large-cap managers had a median return of 0.2 per cent while the median return for mid-cap managers was -3.3 per cent and the median small-cap manager lost almost seven per cent. Growth performed better than value across the range.

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