(February 1, 2012) — Institutional investment plan sponsors in the Northern Trust Universe gained 4.5% at the median in the fourth quarter of 2011 and a median return of 0.8% for the year.
According to the third-largest independent US custody bank, a surge in US equities created a positive ending to a mixed year for most plans. “Global market volatility contributed to an up-and-down year for institutional plan sponsors in 2011, with two quarters of moderate gains followed by a nearly 10 percent drop in the third quarter and a sharp recovery at year-end,” said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services, in a statement. “Last quarter’s positive results were in line with historical trends in the Northern Trust Universe, with fourth quarter median returns typically being the highest in the calendar year.”
While institutional investors in the Northern Trust universe achieved a median return of just under 1% for the year, the results differed by segment. Corporate ERISA Pension Plans gained 2.3% at the median while the median Public Fund was up by 0.9% and the median fund in the Foundations & Endowments segment was down by 0.6% for the 12 months ending December 31, 2011.
In terms of asset allocation, Northern Trust’s research showed that corporate pension plans had the largest allocation (nearly 35% at the median) to fixed-income in the third quarter, along with the largest allocation to US equity (nearly 37% at the median). Public Funds performance suffered from a larger allocation to International Equities (16%) while Foundations & Endowments’ larger allocation to hedge funds (7%) hurt performance.
The Northern Trust Universe represents the performance of about 300 large institutional investment plans in the US, with a combined asset value of approximately $689 billion, which subscribe to Northern Trust performance measurement services.
Last year, Northern Trust found that strong equity performance coupled with the success of active managers contributed to its success. “What we’ve seen in our universe is that a lot of our plan sponsors have been overweight in small to mid-cap stocks, which have done particularly well,” Frieske told aiCIO in April of last year. “The strong performance of active managers has helped that gain,” he added.
According to Frieske, the superior performance of active over passive managers contrasts with assertions by prominent figures in the investment industry, such as Vanguard. “We’ve proven period over period that active managers are a good idea, as our universe has demonstrated that the median manager — the guy in the middle of the pack — is better than the index,” he said.