Equity Markets Dealt 3.3% Q407 Setback

February 8, 2008 (PLANSPONSOR.COM) - Mercer's fourth-quarter 2007 Defined Contribution Universe Summary found losses in most equity markets during the period, a Mercer news release indicates.

According to Mercer, the S&P 500 Index lost 3.3% while the fixed income asset class turned in a positive quarter, with the Lehman Aggregate Bond Index posting a 3% gain. Money market instruments rose 1%, as measured by the three-month T-bill rate.

Meanwhile, the balanced asset class, using a benchmark of 60% S&P 500/40% Lehman Aggregate Bond Indices, posted a loss of 0.8%. International equity markets, as measured by the MSCI EAFE Index, lost 1.8% during the fourth quarter.

Mercer data showed the international equity asset class outperformed U.S. equities for the quarter by 150 basis points. Global equities lost 2.4% for the quarter and underperformed international equities by 60 basis points.

Capital market returns remained   positive over the long term. Over a 10-year time frame, the S&P 500 Index returned 5.9%, while the Russell 2000 Index returned 7.1%. International equity markets produced a gain of 8.7% over a 10-year time frame, outperforming their U.S. counterparts.

Over a 10-year period, the fixed income asset class produced a return of 6%, slightly above U.S. equity returns (as measured by the S&P 500 Index) over the same time period.

During the fourth quarter, growth funds outperformed value funds, as the median large cap growth fund posted a loss of 0.5% compared to a loss of 4.7% for the median large cap value fund, Mercer said. 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 310 basis points.

According to the data, the median large cap fund outperformed the S&P 500 Index by 70 basis points for the fourth quarter. Small cap funds underperformed their large cap counterparts for the quarter, as the median small cap fund lost 5.4% for the quarter versus a loss of 2.6% for the median large cap fund.

Within the international equity asset class, the median manager slightly outperformed the MSCI EAFE Index by 10 basis points during the quarter. The median emerging markets manager gained 3.4% for the quarter but underperformed the MSCI Emerging Market Free Index by 30 basis points.

The median core fixed income fund underperformed the Lehman Brothers Aggregate index for the fourth quarter by 70 basis points.