During the quarter, value outperformed growth in large cap equity funds, according to Mercer, although small gains were seen across core, value, and growth styles. Mercer reports that, in five of the last eight quarters, the median value manager outperformed the median growth manager. During Q104, the median large cap value fund returned 2.4%, compared to the median large cap growth, up 1.3%. The median large cap core increased 1.7%.
The large cap increases paled in comparison to the increases noted among international and small-cap mutual funds. Besting all other mutual fund categories tracked by the Defined Contribution Universe Summary for the first quarter was the emerging market equity universe, up 8.8%. Other international funds also performed well: the median international equity fund returned an increase of 4.5% and the median global equity return improved 3.6%.
Small-cap mutual funds were up 6% during the past three months, as measured by the core universe. As in large-cap funds, value outperformed growth, returning 5.9% during the third quarter, to growth’s 4.7%.
By comparison, the S&P 500 Index was up 1.7% during the third quarter, and the Lehman Aggregate increased 2.7%, while money market instruments managed to eke out a 0.6% gain. Balanced funds, using a benchmark of 60% S&P 500/40% Lehman Aggregate, posted a gain of 2.2%.
Looking at the long term, capital market returns remain solidly positive, Mercer reports. Over a 10-year time frame, the S&P 500 Index returned 11.7%, while the Russell 2000 Index returned 10.4%. International equity markets produced a relatively small gain of 4.6% over a 10-year time frame, although the asset class still underperformed US equities. Over a 10-year period, the fixed income asset class produced a return of 7.5%, below large-cap equity returns over the same time period but with significantly less risk, the DC Universe shows.
The median core fixed-income fund slightly underperformed the index for the first quarter by 20 basis points. Mercer attributes this decline to investors favoring the risk/reward trade-off of fixed income securities even in the face of potentially higher interest rates as a result of the uncertain investment environment.
Mercer Investment Consulting publishes the Defined Contribution Universe Summary quarterly. The summary may be downloaded free of charge from www.mercerIC.us .