Mercer IC: Plans in the Black for Q205

August 15, 2005 ( - The median US corporate, public, and foundation/endowment plan enjoyed positive results for the second quarter of 2005, according to the Mercer Investment Consulting (Mercer IC) Summary Performance of US Institutional Portfolios survey.

A Mercer IC news release said that the median US corporate pension plan had a second-quarter gain of 2.2%, as did foundation/endowment funds, while public-sector plans pushed ahead by 2.4%. Since January 1, corporate plans have recorded an average gain of 1.3%, while public plans and foundation/endowment plans earned 1.5% and 1.1%, respectively. Over a 10-year timeframe, all three plan types have averaged between 9.1% and 10.1% on an annualized basis, according to Mercer IC.

According to Mercer IC’s analysis, both value and growth managers produced positive second-quarter results, with the median growth manager besting their value-oriented counterparts by 80 basis points. Based on Mercer IC’s 2005 Fearless Forecast, an annual survey of investment managers’ capital market expectations, large-cap equities are predicted to return 7.3% during 2005, yet the asset class has gotten off to a very slow start with a negative return of 0.8% since January 1. The small-cap asset class, as represented by the Russell 2000 Index, posted a loss of 1.3% for the first half of the year, versus a forecast of 7.4%.

The median large-cap manager outperformed the S&P 500 Index for the second quarter by 30 basis points, and outperformed the index by 140 basis points on an annualized basis over the last 10 years, according to the Mercer IC data. Small-cap managers underperformed their large-cap counterparts by 240 basis points over the current quarter. The median small-cap manager gained 4.1% while the median large-cap manager gained 1.7%.

The international equity asset class, as represented by the MSCI EAFE Index, lost 0.8%, underperforming its US large-cap counterpart for the quarter by a margin of 220 basis points, but equaled the performance of US large-cap equities over the first half of the year. Currency gains detracted from non-US securities during the second quarter of 2005 as the dollar strengthened against most foreign currencies.

Within the international asset class, the growth style outperformed value by 90 basis points both for the quarter and year-to-date. According to Mercer IC’s forecast, international equities were predicted to earn 7.8% for 2005, yet the asset class posted a first-half loss of 0.8%.

Within the fixed income asset class, the median core fixed income manager equaled the performance of the Lehman Brothers Aggregate Index in the second quarter but bested the index on a year-to-date basis by 10 basis points, Mercer IC said. Over a 10-year period, the median manager has outperformed the index by 30 basis points.

Mercer predicted an annual return of only 2.7% for the core fixed income asset class. However, the asset class has already returned 2.5% during the first half of the year. Core opportunistic managers trailed the Lehman Brothers Index by 10 basis points during the quarter but slightly outperformed the index by 10 basis points on a year-to-date basis. The median high-yield manager posted a gain of 2.3% for the quarter.