Mercer: US Equities Rocked in Q205

Mercer Investment Consulting (Mercer IC) said in a news release that also helping second quarter equity performance was the market’s expectation the Federal Reserve officials would continue their trend of “measured” short-term interest rate hikes.

Fund Performance

During the second quarter, growth funds pulled ahead of value funds, as the median large-cap growth fund posted a gain of 2.5% compared to a gain of 1.3% for the median large-cap value fund, Mercer IC said. Small-cap offerings 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 80 basis points.

The median large-cap fund slightly outperformed the S&P 500 Index for the second quarter by 10 basis points and outstripped the index by 40 basis points on a year-to-date basis, according to Mercer IC. Small-cap funds pulled ahead of their large-cap counterparts for the quarter, continuing a general trend over the last several years. The median small-cap fund gained 3.3% for the period versus a gain of 1.5% for the median large-cap fund.

Within the international equity asset class, the median manager outperformed the index by 30 basis points during the quarter and on a year-to-date basis. The median emerging markets manager gained 4% for the quarter but underperformed the index by 20 basis points.

Finally, the median core fixed income fund underperformed the index by 40 basis points for the second quarter and by 30 basis points on a year-to-date basis.

Fixed Income Gains

In the broader markets, according to Mercer IC, fixed income turned in a positive quarter as the Lehman Aggregate posted a gain of 3%. Money market instruments gained 0.7% while the balanced asset class, using a benchmark of 60% S&P 500/40% Lehman Aggregate, showed off a gain of 2%. International equity markets posted a loss of 1% for the quarter.

The international asset class trailed US equities for the quarter by 2.4%, and by a margin of 40 basis points on a year-to-date basis.

Global equities gained 0.4% for the period and outperformed international equities by 140 basis points, as international investors were hurt by a strong dollar, Mercer IC said.

Meanwhile, international equity markets produced a smaller gain of 5.2% over a 10-year time frame, lagging their US counterparts. Over a 10-year period, the fixed income asset class produced a 6.8% return, shy of US equity returns over the same time period but with significantly less risk.