ERISA Plans Top Institutional Plan Portfolio Returns in Q2

Corporate ERISA plans were helped by a larger allocation to U.S. fixed income.

After two consecutive quarters of declines starting in the second quarter of 2015, Northern Trust Universe data shows the second quarter of 2016 was the third consecutive quarter of positive returns for institutional asset owners, with plan sponsors gaining approximately 1.9% at the median.

The 1.9% median return was “a significant increase from the 0.7% median return recorded in the previous quarter,” Northern Trust explains, citing data covering 300 of the largest U.S. institutional investment plans, with a combined asset value of approximately $899 billion. “Since 1998, the average second quarter median return has been 1.7%, placing this quarter slightly above average.”

In the second quarter of 2016, the corporate Employee Retirement Income Security Act (ERISA) plans category fared best among all plan types with a median return of 3%, Northern Trust finds. Public funds were close behind with 1.7% in gains, while foundations/endowments netted 1.5% in the second quarter.

“Differing returns across plan types were driven largely by the duration of their fixed-income investments,” explains Bill Frieske, senior investment performance consultant, Northern Trust Investment Risk and Analytical Services. “In an effort to de-risk their defined benefit pension plans, corporate ERISA plan sponsors have been lengthening the duration of their fixed-income programs. Interest rates declined in the second quarter, which increased returns for long duration bonds and helped boost corporate ERISA plan returns.” 

Looking at other asset categories, Northern Trust data shows non-U.S. equities returned -0.2% at the median, while U.S. equities returned 2.2% in the quarter. Corporate ERISA plans were helped by a larger allocation to U.S. fixed income (35% at the median), which returned 2.6% at the median.

For public funds, returns were dampened by a larger allocation to international equities (15% at the median), which produced the lowest median return of the major asset classes. For foundations and endowments, returns were muted by weak performance from a significant 11% allocation to private equity, “the second lowest returning major asset class at 0.2%.”

Long-term data reported with the quarterly results shows corporate ERISA plans have enjoyed 5-year trailing returns of 7.5%, while public funds earned 6.9% and foundations/endowments netted 5.7%.

Additional research and information is available on the Northern Trust website.