Institutional Investors See Q305 Gains

November 16, 2005 ( - Institutional investors ended the third quarter of 2005 with gains, according to the quarterly survey by Mercer Investment Consulting.

A Mercer Investment Consulting news release said that the median corporate plan had a third-quarter gain of 3.9%, public plans gained 4.2% while foundation/endowment funds had a 4.3% advance.

Year to date, corporate plans had average advances of 5.1%, while public plans and foundation/endowment plans were ahead by 6.1% and 5.5%, respectively. Over a 10-year time frame, all three plan types averaged between 9% and 9.9% on an annualized basis, according to Mercer.

According to Mercer IC’s analysis, both value and growth managers produced positive results during the third quarter, with the median growth manager outperforming its value-oriented counterparts by 40 bps.

Based on Mercer IC’s Fearless Forecast, large-cap equities are forecast to return 7.3% for the year, yet the asset class has returned only 2.8% on a year-to-date basis. The small-cap asset class, as represented by the Russell 2000, posted a gain of 3.4% for the first three quarters of the year, versus a forecast of 7.4%.

The median large-cap manager outperformed the S&P 500 Index for the third quarter by 50 bps and outperformed the index by 130 bps on an annualized basis over the last decade. Small-cap managers bested their large-cap counterparts by 180 bps over the current three-month period. The median small-cap manager gained 5.9% while the median large-cap manager pushed ahead by 4.1%.

The international equity asset class, as represented by the MSCI EAFE Index, gained 10.4%, outperforming its US large-cap counterpart for the quarter by a margin of 680 bps and by 670 bps on a year-to-date basis. Currency gains continued to detract from non-US securities during the third quarter of 2005 as the dollar strengthened against most foreign currencies.

Within the international asset class, the growth style benchmark underperformed value by 80 bps, yet the median growth manager outperformed their value counterparts by 150 bps. International equities are expected to earn 7.8% for 2005, yet the asset class exceeded expectations by posting a year-to-date return of 9.5%.

Within the fixed income asset class, the median core fixed income manager outperformed the Lehman Brothers Aggregate Index in the third quarter by 20 bps and by 30 bps on a year-to-date basis. Over a 10-year period, the median manager has outperformed the index by 40 bps points.

Mercer IC’s 2005 Fearless Forecast predicted an annual return of only 2.7% for the core fixed income asset class. Hurt by third-quarter losses, the core fixed income class returned only 1.8% on a year-to-date basis.