The Markets August 10, 2012

Master Trusts See Negative Returns in Q2

The median return of BNY Mellon’s U.S. Master Trust Universe was -1.47% for the second quarter, driving down performance for the typical fund to 5.65% year over year.
Reported by

This marks only the third time in the last 12 quarters that the median plan has shown a negative return, and the first time since third quarter of 2011. Even with weak quarterly performance, the median plan remained up 1.26% for the 12 months ending June 30.

Only 20% of plans had positive results for the quarter ending June 30.  For the 12-month period, 67% of plans were in the black.  

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Forty-eight percent of plans matched or outperformed the custom policy return of -1.41% for Q2. For the full year, 25% of plans outperformed the custom policy.  

Corporate plans were the leading plan type for the second quarter with a median return of -0.85%, followed by health care plans (-1.42%), endowments (-1.53%), public plans (-1.60%), Taft-Hartley (-1.65%) and foundations (-1.80%).  

Real estate was the dominant asset class for the quarter with a median return of 2.45%, versus the NCREIF Property Index result of 2.68%. U.S. fixed income had a median return of 2.32%, versus the Barclays Capital U.S. Aggregate Bond Index return of 2.06%.  Non-U.S. fixed income posted a median return of 0.65%, compared to the Citigroup Non-U.S. World Government Bond Index return of 0.20%.  U.S. equities posted a median three-month return of -3.64%, versus the Russell 3000 Index return of -3.15%.  Non-U.S. equities posted a median return of -7.07%, just ahead of the Russell Developed ex US Large Cap Index result of -7.09%.   

The average asset allocation in the BNY Mellon U.S. Master Trust Universe for the second quarter was: U.S. fixed income 29%, U.S. equity 28%, non-U.S. equity 16%, non-U.S. fixed income 2%, real estate 2%, cash 1%, and alternatives/other 22%.  

The BNY Mellon U.S. Master Trust Universe consists of more than 700 corporate, foundation, endowment, public, Taft-Hartley and health care plans.

 

In Practice August 10, 2012

As DC Plans Change, so Do Opportunities for Asset Managers

Although plan sponsors are reluctant to completely overhaul their plans, evolving defined contribution (DC) plans are creating challenges and opportunities for advisers, a report found.
Reported by

DC plans would be significantly different than what is currently offered to participants if they were started today, according to “The State of Large and Mega Defined Contribution Plans: Investment Innovation and the Plan Sponsor Perspective.”   

Asset managers need to focus efforts on the large and mega markets, as those markets are likely to implement new designs quicker than smaller plans, according to Cerulli Associates’ research study on the bigger DC plan marketplace. This is especially true for the high end of the mega market, where opportunities will develop first.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Asset managers seeking DC assets need to build relationships with plan sponsors and consultants as these groups have the most influence on investment selection. Recordkeepers still hold some influence in the small end of the large market. The 401(k) market provides the greatest asset opportunity, and despite the maturity of the market, Cerulli expects that changes in investment menu design will create additional opportunities.

 

(Cont’d…)

New ideas to simplify DC plan investment menus are being touted by asset managers. Assets in standalone investment choices will remain relatively flat as target-date funds continue to garner assets. Investment menus will continue to evolve, opening the door for products that have had limited success in DC plans, such as alternatives and managed accounts.

Asset managers should expect best-in-class funds based on performance in traditional asset classes to continue to win mandates, but in the long term, a fund’s role in an asset-allocation strategy will become more important. Asset managers should begin thinking about how to position funds in this new environment.

Asset managers should wait until requested to develop a collective trust version of a strategy. However, those that need to use an outside trust company to bring a collective trust to market should explore their options and develop a relationship in order to speed up time to market, should the need for a collective trust arise.

The report also indicates that consultants are the primary source of information for plan sponsors. Only 12% of plan sponsors indicate that conferences are the initial source of defined contribution plan information. Asset managers can more effectively reach plan sponsors through consultant relations or directly than by speaking at conferences.

 

«