The Markets May 14, 2013

Target-Maturity Funds Up 5% in Q1 2013

Overall, target-maturity funds had a good first quarter in terms of performance and asset inflows, according to Morningstar’s Ibbotson Associates.
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Target-maturity funds returned 5.3% on average for the quarter and more than 9% for the 12-month period, driven by the strong performance of U.S. equities. For the quarter and 12-month period, only 25% of target-maturity funds outperformed their Morningstar Lifetime Moderate indexes.   

Flows into target-maturity funds in the quarter topped $23 billion, breaking the previous record of $16 billion in first quarter 2011. As of the end of first quarter, total assets in target-maturity funds were estimated to be $518 billion, a 21% increase from one year ago.  

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During the past two years Morningstar has provided glide path stability scores (GPSS) for some of the largest retail target-date fund providers. The GPSS metric was born from a white paper that looks at how much target-date fund series’ glide paths shift over time. The term “glide path” in this context refers to the level of equity of each target-date fund series. This year, the three series with the most stable glide paths since inception include T. Rowe Price, Vantagepoint, and MFS.  

Some notable fund families that experienced elevated scores since inception (i.e., higher level of glide path instability) include American Century (moved down eight ranks from a year ago) and Fidelity’s Advisor series (moved down 10 ranks from a year ago).  

The full report is here.
The Markets May 14, 2013

Third Quarter of Positive Returns for Master Trusts

The median return of the BNY Mellon U.S. Master Trust Universe was 4.53% for the first quarter, marking the third consecutive quarter of positive returns.
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This return was driven largely by strong U.S. equity performance, according to global investment firm BNY Mellon. Also, for the 12 months ending March 31, the median plan was up 10.05%.

“All plan types within the Universe reported gains for the first quarter, helped by a continued surge in U.S. equities,” said John Gruber, head of product strategy for BNY Mellon’s Global Risk Solutions group. “Public plans were the best performing segment, while an overweighting to U.S. fixed income by health care plans contributed to their relatively low performance.”

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Other findings by BNY Mellon include: 

  • Almost all (99%) plans in the BNY Mellon Master Trust Universe returned positive results during the quarter. Over the prior 12-month period, 96% of plans were in the black;
  • Sixteen percent of plans matched or outperformed the custom policy return for first quarter. For the full year, 51% of plans outperformed the custom policy;
  • Public plans recorded the highest median return for the quarter (4.83%), followed by Taft-Hartley plans (4.74%);
  • U.S. equities posted a quarterly median return of 11.03% vs. the Russell 3000 Index return of 11.07%. Non-U.S. equities posted a median return of 4%, behind the Russell Developed ex US Large Cap Index result of 4.86%.
  • U.S. fixed income had a median return of 0.24% vs. the Barclays Capital U.S. Aggregate Bond Index return of -0.12%. Non-U.S. fixed income posted a median return of -0.62%, compared to the Citigroup Non-U.S. World Government Bond Index return of -3.83%; and
  • Real estate posted a median return of 2.73% vs. the NCREIF Property Index result of 2.57%.

 

The average asset allocation in the BNY Mellon U.S. Master Trust Universe for the first quarter was: U.S. equity (27%), U.S. fixed income (27%), non-U.S. equity (17%), non-U.S. fixed income (2%), real estate (3%), cash (1%), and alternatives/other (23%).

With a market value of more than $2.4 trillion and an average plan size of $3.8 billion, the BNY Mellon U.S. Master Trust Universe is a fund-level tracking service that can be used to make peer comparisons of both performance and asset allocation results. The Universe consists of 612 corporate, foundation, endowment, public, Taft-Hartley and health care plans.

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