Equities Increase in 3Q05

November 1, 2005 (PLANSPONSOR.com)—Despite the increase in energy prices and interest rates and the decline in consumer confidence, all US equity markets rose during the third quarter of 2005.

These increases resulted in small year-to-date gains for most indices, according to data from Mercer Investment Consulting, Inc. (Mercer IC).

Benchmark Performance

Mercer IC’s Defined Contribution Universe Summary for the third-quarter of 2005 showed the highest gain in international equity markets (10.4%). International equities outperformed US equities for the quarter by 6.8%. On a year-to-date basis, international has outperformed domestic by a margin of 630 basis points. However, although global equities gained 7.0% for the quarter, they underperformed international equities by 340 basis points, Mercer IC said.

The S&P 500 increased 3.6%, but fixed income, measured by the Lehman Aggregate, was down 0.7%. Other gains were seen in money market instruments (0.8%) and the balanced asset class (1.9%).

Examining the long-term numbers, Mercer IC said that capital markets were aided by positive one-year results in all equity asset classes. The S&P 500 Index returned 9.5% while the Russell 2000 Index returned 9.4%, over 10 years. International equities were bested by domestics over the long-term, producing a return of 5.8%. The fixed income asset class produced a return of 6.5%.

Mutual fund performance

The summary showed that growth funds outperformed value funds during the third quarter, with the median large-cap growth fund posted a gain of 4.7% compared to a gain of 3.5% for the median large-cap value fund. A similar trend was seen in small-cap stocks, growth beating value by a margin of 110 basis points.

The median large-cap fund outperformed the S&P 500 Index by just 50 basis points during the third quarter but by 120 basis points for the year-to-date. Continuing a trend, small-cap funds outperformed large-caps counterparts during the third quarter, with the median small-cap fund increasing 5.3% in the quarter while the median large cap fund increased 4.1% for the median large-cap fund.

The median manager in international equity outperformed the index by 60 basis points during the quarter and 70 basis points for the year. A smaller lead was found by the median emerging markets manager, which gained 18.2% for the quarter, outperforming the index by just 10 basis points, Mercer IC said.

The median core fixed income fund, although outperforming the index by 20 basis points during the third quarter, was down by 20 basis points for the year.