Mercer Investment Consulting’s 2003 Defined Contribution Universe Summary said the stepped-up equity demand could translate into defined contribution participants hungering for additional equity options in their retirement plans.
The bright sun shining on equities was apparent in the performance of the broader market indices for the fourth quarter with the S&P 500 Index up 12.2%, international equity markets returning 17.1%, fixed income funds turning in a small positive quarter as the Lehman Aggregate posted a 0.3% gain. Money market instruments gained 0.2% while balanced funds, using a benchmark of 60% S&P 500/40% Lehman Aggregate, posted a 7.4%-gain.
During the fourth quarter, value funds outpaced their growth brethren, as the median large-cap value fund returned 13.2% compared to 10.3% for the median large-cap growth fund. The quarterly results reversed a trend over the last two years as value outperformed growth. The small-cap segment of the market followed large-cap issues, as the median small-cap value fund outperformed the median small-cap growth fund by a 2.5% margin.
With the equity market rotating back to value after a large rally within the growth style, investors need to re-evaluate their portfolios to remain broadly diversified and be less reliant on one specific style, Mercer said.
The median large-cap fund underperformed the performance of the S&P 500 Index for the fourth quarter of 2003 by 40 basis points, and lagged the index by 110 basis points over the preceding year. Continuing a 2002 trend within the US domestic equity market, small-cap funds won out over their large-cap counterparts for the quarter. The median small-cap fund returned 14.5% for the quarter versus 11.8% for the median large-cap fund.
The international asset class outperformed its US large-cap counterpart by a margin of 990 basis points over the last year. Global equities gained 14.3% for the quarter, but were slightly held back by their US equity exposure as the asset class followed behind international equities by 280 basis points, Mercer said. International equities continued to outperform domestic equities as the US dollar remained weak relative to other currencies.
The median core fixed income fund equaled the performance of the index for the fourth quarter. While the returns from the fixed asset class are considerably lower than the last several years, the low-risk nature of the asset class offers investors a favorable risk/reward trade-off, Mercer said
The Defined Contribution Universe Summary is available at www.mercerIC.us .
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