Lower Equity Allocation Buoys Pension Returns in Q1

May 14, 2009 (PLANSPONSOR.com) - By one measure pension plans continued to lose value in the first quarter - but less so than in the prior quarter.

According to that measure – the BNY Mellon US Master Trust Universe – the median plan in that sampling posted a -6.07% return for the first quarter of 2009, the sixth straight quarter of negative returns.   But that amount was less than half the loss posted for the fourth quarter of 2008 (-13.10%).   The Universe consists of 578 corporate, foundation, endowment, public, Taft-Hartley and health care plans.

“All segments of the BNY Mellon US Master Trust Universe were in negative territory for the first quarter, but fared quite a bit better than during the final quarter of 2008,” said Greg Stewart, first vice president and regional product manager of BNY Mellon Asset Servicing.   “In fact, the median return for the month of March 2009 was positive (3.68%) as equity markets, domestic and international rallied.   Still, the financial impact of the last 18 months remains apparent in the extended period results, where the median plan posted annualized returns of just 0.20% and 2.68% over five and 10 years, respectively.”

Other Highlights from the sampling:

  • 97% posted negative results for the period ending March 31, 2009.
  • 86% of the plans posted a return that either matched or exceeded the custom policy return of -7.98% in the first quarter (though BNY Mellon notes that most plans in the sampling have lower allocations to equities than the custom policy and this underweighting in the weaker performing asset class contributes to the outperformance).

The average asset allocation in the BNY Mellon US Master Trust Universe for the first quarter was:

  • US equity 30%,
  • US fixed income 31%,
  • non-US equity 15%,
  • non-US fixed income 1%,
  • alternative investments 10%,
  • real estate 2%,
  • cash 2%, and
  • other (private equity, oil, gas, etc.) 9%.

In fact, US fixed income led all asset classes for the quarter with a median return of 0.36%, outperforming the Barclays Capital U.S. Aggregate Bond Index return of 0.12%.   Non-US fixed income posted a median return of -0.76%, versus the Citigroup Non-US Dollar World Government Bond Index return of -5.74%, according to the report.   US equities lost 9.86%, compared to the Russell 3000 Index return of -10.80%.   Non-US equities fell 11.34%, lagging the MSCI All Country World ex US Index return of -10.62%.   

Health care was the top performing plan type for the first quarter with a -3.45% median return, followed by endowments, foundations, public, Taft-Hartley and corporate plans.  

With a market value of $888.9 billion and an average plan size of $1.5 billion, the BNY Mellon US Master Trust Universe is a fund-level tracking service that can be used to make peer comparisons of both performance and asset allocation results.  

BNY Mellon US Trust Universe Median Plan Returns

Period Ending March 31, 2009
                                                                     Universe        Number of   Participants1Q             2009One-   YearFive- YearsTen-Years
Master Trust Total Fund578-6.07-25.780.202.68
    Corporate Plans245-6.48-
    Public Plans70-6.22-
    Taft-Hartley Plans49-6.46-24.72-0.742.28
    Health Care Plans20-3.45-
Universe Custom Composite Benchmark-7.98-30.66-2.16-0.31