US schemes show 'modest' first quarter returns
US- US plan sponsors have witnessed modest first quarter returns according to Mercer Investment Consulting. The latest performance figures for US institutional figures show corporate plans returned an average 1% return while public plans and foundation/endowment funds fared better with a corresponding 1.2%.
Over a five year period, foundation and endowment funds continue to outperform both corporate and public plans by up to 70 basis points.
In the report Mercer warned that although returns were positive for the first quarter, most plan sponsors are assuming annual returns of between 8% and 9% and have only made marginal progress in reaching their year-end targets.
Says Barry McInerney, head of Mercer Investment Consulting in the US: “while it is difficult to predict year-end results from only one quarter of performance, plan sponsors should brace themselves for the possibility of not meeting their return expectations for the third consecutive year.”
On a brighter note, five and ten year returns, respectively 8.9% and 10.7% remain relatively robust, particularly in light of the low inflation over the same period.
Again value managers outperformed their growth counterparts and are even likely to meet forecasted results based on investment managers’ expectations for 2002.
Large- and small-cap value managers are forecast to return 10% for the year and both recorded strong first quarter results of 3.5% and 9.4% respectively. In contrast, growth managers in the US were down 2.4% in the first quarter.
"As style trends become pervasive on a global scale, plan sponsors are beginning to analyse international managers similar to the way US managers are analysed, by segregating them into style classifications," says McInerney.
"This fits into the overall trend of plan sponsors re-evaluating the equity segment of their portfolios by analysing style and/or capitalization biases across mandates."
Active fixed income managers continue to have a difficult time outperforming their passive counterparts. The median core fixed income manager under-performed the index for the first quarter by 10 basis points and has equalled the return of the Lehman Aggregate over a five-year time frame.