Investing February 8, 2006

Mercer: Investors Help Revive US Equities in Q405

February 8, 2006 (PLANSPONSOR.com) - Investors helped push up US equity markets during the October to December 2005 period as they anticipated an end to interest-rate hikes and a moderating of higher oil price pressure, a new analysis found.
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A news release from Mercer Investment Consulting said that its fourth-quarter 2005 Defined Contribution Universe Summary found gains in all equity markets, leading to modest year-to-date returns for most indices.

According to Mercer, the S&P 500 Index was up 2.1%, while the fixed income asset class turned in a positive quarter with the Lehman Aggregate posting a 0.6% gain. Money market instruments rose 0.8% while the balanced asset class, using a benchmark of 60% S&P 500/40% Lehman Aggregate, posted a gain of 1.5%.

International equity markets gained 4.1% during the quarter. The international equity asset class outperformed US equities for the quarter by 2%, and by a margin of 860 basis points on a year-to-date basis, the analysis said. Global equities pulled ahead by 3.1% for the quarter but underperformed international equities by 100 basis points.

Meanwhile, capital market returns remain solidly positive over the long term, aided by positive one-year results in all equity asset classes. Mercer said. Over a 10-year time frame, the S&P 500 Index returned 9.1% while the Russell 2000 Index returned 9.3%. International equity markets produced a smaller gain of 5.8% over a 10-year time frame, lagging theirUS counterparts. Over a 10-year period, the fixed income asset class produced a return of 6.2%, below US equity returns over the same time period but with significantly less risk.

On the mutual fund front, during the fourth quarter, growth funds outperformed value funds, as the median large cap growth fund posted a gain of 3.3% compared to a gain of 1.6% for the median large cap value fund. The small cap segment of the market followed the same trend as large cap stocks, as the median small cap growth fund outperformed the median small cap value fund by a margin of 70 basis points, Mercer said.

The median large cap fund slightly outperformed the S&P 500 Index for the fourth quarter by 10 basis points and by 140 basis points on a year-to-date basis. Small cap funds underperformed their large cap counterparts for the quarter, reversing a general trend over the last several years. The median small cap fund gained 1.3% for the quarter versus a gain of 2.2% for the median large cap fund.

The Defined Contribution Universe Summary may be downloaded free of charge from www.mercerIC.us . A free registration is required.

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