Plans Show Nearly 5% Fourth Quarter Gains

February 21, 2003 ( - Despite a stubborn bear market, US retirement plans and foundation/endowment funds ended the fourth quarter of 2002 in the plus column - but not by much.

According to Mercer Investment Consulting’s quarterly study:

  • the median corporate plan had a 4.7% fourth-quarter gain
  • public plans showed a 4.8% gain over the month
  • foundation/endowment funds showed a 4.6% gain.

For the 12-month period ending December 31, corporate plans had a 9.2% loss, underperforming both public plans and foundation/endowment funds by 20 and 30 basis points, respectively, according to Mercer. Over a 10-year time frame, foundation/endowment funds continue to outperform both corporate and public plans by 55 to 95 basis points. Two reasons, for that difference, according to Mercer: a lower domestic and international equity exposure and a higher percentage of alternative investments.

Equity Growth Managers Hit Particularly Hard

Both value and growth managers produced positive fourth-quarter results, with value managers outperforming their growth-oriented counterparts by 360 basis points. However, over the year, equity results of every investment style were poor with losses of 17.5% for large-cap value and 26.9% for large-cap growth.

The median large-cap manager significantly lagged the S&P 500 Index for the fourth quarter of 2002 by 120 basis points, but bested the index by 70 basis points on an annualized basis over the last 10 years. Large-cap managers outperformed their small-cap counterparts by 250 basis points over the previous quarter, as the median large-cap manager boasted a 7.2% gain and the median small-cap manager returned 4.7%.

The international asset class, with a return of 6.5%, underperformed its US large-cap counterpart for the quarter by a margin of 190 basis points, but outperformed US large-cap equities over the recent 12-month period by 6.4%. Within the international asset class, the growth style outperformed value by 2% for the quarter but lagged for the year by 6.3%.

Fixed Income Boasts 10.3% Yearly Gain

Within the fixed income asset class, the median core fixed income manager equaled the index for the fourth quarter but trailed the index over the year by 50 basis points. Over a 10-year basis, the median manager has outperformed the index by 30 basis points.

The fixed income asset class has produced a yearly return of 10.3%, far better than Mercer’s 2002 Fearless Forecast prediction of 5%. Core opportunistic managers had a strong quarter as they outperformed the index by 70 basis points, as corporate securities and lower quality credits bounced back from their lows anticipating an economic turnaround. The median high-yield manager gained 5.6% for the quarter, but followed the benchmark by 110 basis points.

Regarding international fixed income performance, a weak US dollar helped non-US mandates, a reversal from last quarter’s performance. For the recent quarter, the median manager had returns of 6.2% and 4.9% for non-US and global mandates, respectively. Both mandates produced solid 10-year results, 6.4% and 6.6%, respectively.