Wilshire: Ups and Downs for Domestic Large, Small Cap Stocks in 2017

High-yield managers continue 10-year index struggle.

Varying domestic large and small cap stocks, the rising of emerging markets, and highyield managers experiencing some trouble were just a few of the talking points of Wilshire Consulting’s eighth annual 2017 Active Management Review.

US small and large cap stocks experienced some pains, and although small caps underperformed their large cap counterparts by -8.4% in 2017, US large cap equity manager universes had some problems with adding value on a net-of-fees basis, most notably in the large growth and large core universes. However, the large value segment saw 84% of managers beat the index over the past 10 years, with an average 1.18% excess return.

Small growth and small value managers also saw healthy median excess returns over the previous year of 1.07% and 1.50%, respectively. Additional positive returns came from non-US developed market equity universes, with respective median gross-of-fees excess returns of 1.98% and 1.53% from the developed ex-US universe and its small cap segment.

According to the report, the heavy hitter came in the form of emerging markets, which saw stocks outperform developed markets by a 12.3% net. The emerging markets universe saw a 0.33% gross-of-fees median excess return.

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

Outpacing the core fixed income market were highyield bonds by a 4% net, which reportedly challenged the relative returns of managers who find highercredit bonds more attractive. However, the US core and highyield bond universe experienced issues keeping pace with their indexes in 2017. US cores underperformed by a median gross of fee of -0.17% while highyield bonds suffered a -0.43% misstep. Wilshire reports that nearly 80% of the highyield manager universe has been struggling to keep pace with the index over the past decade.

The report also noted that US value stocks underperformed growth by -11.4%.

“Our general expectations across the capital markets are for the average/median manager to generate long-term gross-of-fees performance that is market-like. As such, once accounting for fees, we would expect average active results to trail passive indexes,” Steve Foresti, Wilshire Consulting’s CIO, said in a statement. “That said, we do not view this as an indictment against the pursuit of active management, but rather as further evidence that a robust qualitative manager due diligence process is critical within an active management program.”

Tags: , ,

Mass. Bill Calls for Firearms Divestment

Proposed legislation would require state pension to dump firms that sell firearms and ammunition.

Two Massachusetts legislators have proposed a bill that would require the state pension fund to sell its shares in companies that derive 15% or more of their revenue from firearms and ammunition.

The bill, which is sponsored by State Rep. Lori Ehrlich and State Sen. Cynthia Creem, calls for the state’s Pension Reserves Investment Management (PRIM) board not to invest in any ammunition, firearm, or firearm accessory manufacturing or retailing companies.

Should the bill become law, PRIM will have 30 days after the bill’s enactment to identify all ammunition, firearm, or firearm accessory manufacturing or retailing companies in which the fund owns direct or indirect holdings. It would be required to file a list of any such holdings with the state’s attorney general, and with the clerks of the Massachusetts Senate and House of Representatives. The fund would then have 12 months after enactment to sell, redeem, divest, or withdraw all publicly-traded securities of each company identified on the list.

“This bill asks our Massachusetts public pension fund managers to no longer invest in companies that manufacture guns and ammunition,” said Creem in a release. “By enacting this bill, Massachusetts will stand with thousands of individuals and entities exercising their right as consumers to send the message that we must do more to stop gun violence.” 

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

The divestment requirements would not apply to indirect holdings in actively managed investment funds, as long as the fund submits letters to the managers of funds that contain companies singled out by the bill to request that they remove the investments from the fund, or create a similar actively managed fund without the prohibited holdings.

However, the bill has a provision that would allow the state’s pension fund to end the divestment, and return to investing in firearms and ammunition manufacturers and retailers if the divestment hurts the fund’s returns. There would have to be “clear and convincing evidence” that the value for all assets under management become equal to or less than 99.5% (50 basis points) of the hypothetical value of all assets under management by the public fund had no divestment occurred.

In this case, the fund would have to provide a written report, updated annually, to the attorney general, the senate and house committees on ways and means, and the joint committee on public service that provides evidence backing the decision.

“Congress is unable to act even in the face of overwhelming support,” said Ehrlich in a release. “It is time for state stewards to ensure our retirement savings and pension funds are not profiting from that violence.”

Tags: , , , ,

«