Institutional Plan Sponsors See Higher Q2 Gains

Institutional plan sponsors gained almost 4 percent in the second quarter at the median, nearly doubling the gains achieved in the first quarter, according to Northern Trust Universe data.

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, which subscribe to Northern Trust performance measurement services.

Institutional plans continued to benefit from gains in the domestic and international equity sectors, in addition to smaller gains in fixed income. In the second quarter, corporate ERISA plans performed best among all plans with a return of 4 percent, compared to 2.8 percent last quarter. Public Funds netted a gain of 3.9 percent at the median, an increase of 2 percent from the first quarter. Foundations & Endowments followed with a return of 3.5 percent at the median in the second quarter, which was more than double the previous quarter. Corporate ERISA plans recorded their fourth consecutive quarterly gain, while both Public Funds and Foundations & Endowments generated positive returns for the eighth straight quarters.

The second quarter marked the twenty-first consecutive quarter without two consecutive quarters of negative median returns. Institutional plan sponsors have not experienced two consecutive quarters of negative median returns since the fourth quarter of 2008 and the first quarter of 2009. Over that five-year span, institutional plan sponsors have enjoyed a median return of just over 12.5 percent.

“The second quarter saw a sizable uptick in the median gain for all institutional plans,” said Bill Frieske, senior performance consultant, Northern Trust Investment Risk and Analytical Services. “Strong earnings growth and low interest rates have given additional momentum to equity and bond markets, which have helped plan sponsors to continue their streak of quarterly gains. All asset classes performed well in the second quarter as three month returns suggest annual performance that will exceed long-term expectations.”

Asset allocation per segment was as follows:

• Public Funds were weighted towards U.S. equity (32.6 percent) and international equity (22.9 percent)
• Foundations & Endowments were weighted towards private equity (23.1 percent) and U.S. equity (19.9 percent)
• Corporate ERISA plans were weighted towards U.S. fixed income (37.8 percent) and U.S. equity (29.3 percent)

In the second quarter, the median US equity program returned 4.3 percent. International equities also had a robust quarter, returning 4.5 percent. In the alternative sector, private equity returned 4.2 percent in the quarter and real estate netted 3.3 percent. The fixed income sector returned 2.5 percent.

Corporate ERISA plans performed best in the quarter, boosted by a combined 42 percent allocation to both international and U.S. equity markets. Public Funds had the second-highest overall return, reflecting another strong concentration toward international and U.S. equities. Foundations & Endowments, with their weighting towards alternative assets, had an only slightly less positive quarter compared to the other two plan segments. With public market returns performing so well over the last five-years, it is not surprising that corporate ERISA plans and Public Funds are outperforming Foundations & Endowments over that time period, given their heavier weighting towards alternatives.

The highest returning asset segment was mid-cap value, up 5.6 percent, while core fixed income was up a more modest 2 percent. At the larger end of the market-capitalization spectrum, growth beat value but at the mid- and small-cap end, value outpaced growth. Declining rates favored longer-duration over shorter bonds and higher risk high-yield and emerging market debt were the best of the best in fixed income.

Longer-term returns as of June 30, 2014 were:

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 19 states, Washington, D.C., and 18 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2014, Northern Trust had assets under custody of US$6 trillion, and assets under investment management of US$924.4 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.

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