US - US public sector pension plans narrowly pipped their corporate counterparts in the second quarter but the overall result was weak returns for the first half of the year.
According to Mercer Investment Consulting’s quarterly survey of plan sponsor performance, the median corporate pension plan had a second quarter gain of 2.2% compared to 2.4% for public plans.
On a year to date basis, corporate plans posted average gains of 1.3% while public plans earned 1.5%. Over a 10-year timeframe, corporate, public and foundation/endowment plans have averaged between 9.1% and 10.1% on an annualised basis, Mercer said.
In the equity sphere, the survey found the median growth manager outperformed their value counterparts by 80 basis points.
Based on Mercer’s 2005 Fearless Forecast, large cap equities should return 7.3% for 2005, but the asset class is off to a slow start with a negative return of 0.8% over the year to date.
The small cap asset class, as represented by the Russell 2000 Index, posted a loss of 1.3% for the first half of the year, versus a forecast of 7.4%. The median small cap manager gained 4.1% while the median large cap manager gained 1.7%.
Small cap managers underperformed their large cap counterparts by 240 basis points over the current quarter, with the median large cap manager outperforming the S&P500 Index by 30 basis points or 140 basis points on an annualised basis over the last 10 years.
International equity, as represented by the MSCI EAFE Index, lost 0.8%, underperforming its US large cap counterpart for the quarter by 220 basis points, but equalling the performance of US large cap equities over the first half of the year.
The survey found currency gains detracted from non-US securities during the second quarter of 2005 as the dollar strengthened against most foreign currencies.
Within fixed income, the median core fixed income manager levelled with the performance of the Lehman Brothers Aggregate Index in the second quarter but slightly exceeded the index on a year to date basis by 10 basis points. Mercer’s Fearless Forecast predicted an annual return of only 2.7% for fixed income, but the asset class has already returned 2.5% during the first half of the year.
Assessing international fixed income performance, Mercer said the median manager had quarterly losses of 2.6% and 1.1% for non-US and global mandates respectively.
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