Corporate DBs Beat Other Institutional Investors in Q1 2016

"Having the smallest exposure to equities was a key factor,” says Bill Frieske of Northern Trust Investment Risk & Analytical Services.

The first quarter of 2016 marked the second consecutive gain for institutional asset owners after two consecutive losses beginning in the second quarter of 2015, with plan sponsors gaining approximately 0.7% at the median, according to data from the Northern Trust Universe. Since 1998, the average first quarter median return has been 1.1%.

Corporate Employee Retirement Income Security Act (ERISA) plans had the best performance in the quarter with a return of 2.2% at the median, while Public Funds were second returning 1%. Foundation & Endowments finished third with a return of 0.1% at the median. Public Funds and Foundations & Endowments recorded reduced gains compared to the previous quarter.

“Having the smallest exposure to equities was a key factor behind the relative outperformance of corporate ERISA plans,” says Bill Frieske, senior investment performance consultant, Northern Trust Investment Risk & Analytical Services. “Another factor helping corporate ERISA plans was the longer duration of their fixed income programs.”

In the fourth quarter of 2015, equities performed well while bonds lagged. The opposite was true in the first quarter. Bonds generally outperformed stocks in the first quarter as interest rates edged downward. The median total fixed income segment was up 3% and the U.S. fixed income segment was up 2.8%. The median total equity program and U.S. equity program were both essentially flat. However, there was wide variance in equity segment returns with the median emerging market equity manager up 5.5%, while the median non-U.S. developed equity manager was down 1.5%.

Northern Trust’s findings generally showed Corporate ERISA plan returns were bolstered by a large allocation to U.S. fixed income (34% at the median); Public Fund returns were dampened by a large exposure to U.S. equities (36% at the median), offset by a significant allocation to U.S. fixed income (22% at the median); and Foundations & Endowment returns were muted by U.S. equities (28% allocation at the median).

The Northern Trust Universe tracks the performance of about 300 large U.S. institutional investment plans, with a combined asset value of approximately $899 billion that subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.