Investing November 2, 2006

Q3 Equities Begin to Perk Up

November 2, 2006 (PLANSPONSOR.com) - A new third-quarter analysis found more smiles in the equity markets as equities headed north with an easing of inflationary pressures as oil prices dropped back from their earlier stratospheric levels.
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With that and resulting improved investor confidence levels, MercerInvestment Consulting’sthird-quarter 2006 Defined Contribution Universe Summary found gains in most equity markets during the quarter, according to a Mercer news release.

During the third quarter, value funds outperformed growth funds, as the median large cap value offering posted a gain of 5.4% compared to an advance of 2.7% for the median large cap growth fund. The small cap segment trended in the same direction as large cap stocks, as the median small cap value fund bested the median small cap growth fund by a margin of 240 basis points, according to the analysis.

The median large cap fund underperformed the S&P 500 Index for the third quarter by 140 basis points. Small cap funds lagged their large cap counterparts for the quarter, as the median small cap fund lost 0.8% for the quarter versus a gain of 4.3% for the median large cap fund, Mercer IC said.

Within the international equity asset class, the median manager underperformed the index by 10 basis points during the quarter. The median emerging markets manager gained 4.9% for the quarter and underperformed the index by 10 basis points.The median core fixed income fund underperformed the index by 20 basis points for the third quarter.

As far as the broader market measures were concerned, the S&P 500 Index gained 5.7%, while the fixed income asset class turned in a positive quarter with the Lehman Aggregate posting a 3.8% gain, Mercer IC said.

Money market instruments, as measured by the three-month T-Bill rate, rose 1.2% while the balanced asset class, using a benchmark of 60% S&P 500/40% Lehman Aggregate, posted a gain of 4.9%. International equity markets (MSCI EAFE)   gained 3.9% during the quarter.

The international equity asset class underperformed US equities for the quarter by 1.8%. Global equities (MSCI World) gained 4.5% for the quarter and outperformed international equities by 60 basis points.

Capital market returns remained solidly positive over the long term. Over a 10-year time frame the S&P 500 Index returned 8.6% while the Russell 2000 Index returned 9.1%. International equity markets produced a smaller gain of 6.8% over a 10-year time frame, lagging their US counterparts. Over a 10-year period, the fixed income asset class produced a return of 6.4%, below US equity returns over the same time period but with significantly less risk.

More information is at www.mercerIC.us.  

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