Endowment Index Declines Again in Q2, Lags Behind S&P

The Endowment Index calculated by Nasdaq OMX fell for the second consecutive quarter, declining 0.41% on a total return basis for the three-month period ended June 30, after dropping 0.36% during the first quarter of the year.

For more stories like this, sign up for the CIO Alert newsletter. 

The index decoupled from the S&P 500, which gained 3.43% during the same period after losing 0.76% in the previous quarter. Year-to-date, the index has declined 0.77%, while the S&P 500 has gained 2.65% so far in 2018. The first half of the year has been a reversal of fortune for the index, which ended 2017 up 17.6%.

“The primary thematic economic news of the second quarter, including a strong US economy, rising domestic interest rates, global trade protectionism, and higher oil prices were reflected in the performance of the index’s constituents,” said Nasdaq OMX in a release. “Domestic equities and oil and gas were in focus, while emerging markets, particularly China, a primary target of US tariffs, lost favor.”

Despite ending the quarter lower again, 10 of the index’s 19 components posted gains during Q2, though only four gained more than 1%. The biggest gainers were commodities-oil and gas, which returned 17.20%, followed by domestic real estate, which climbed 8.83%. Domestic equity rose 3.90%, while commodities increased 2.30%.

Emerging Markets-China led the nine components that posted declines, tumbling 14.19% during the quarter, followed by emerging markets-equity, which shed 7.76%. Gold was off 5.59%, and emerging markets-fixed income ended the quarter off 4.19%.

The index represents an asset allocation used by major universities’ endowments, and its methodology is based on the portfolio allocations of more than 800 higher learning institutions managing over $500 billion in total assets. The asset allocation includes stocks, bonds, and alternative investments, such as hedge funds, private equity, and real assets.

Within each of the 19 components are more than 30,000 underlying securities, with a current target allocation of 52% alternatives, 36% equity, 8% fixed income, and 4% liquidity, which is represented by the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF.

Tags: Endowment Index, Endowments, Nasdaq OMX, S&P 500

UK benefits lifeboat the Pension Protection Fund ($39 billion) returned 2.8% in fiscal 2017-18, giving its funded status a short boost.

The fund, which takes on the pension obligations of suffering defined benefits plans, is now 122.8% funded, well above its 91% target. The fund also has £6.7 billion in reserves.

Over the year, the rescue plan absorbed the pensions of Carillion, Toys R Us, and Hoover, obtaining £1.2 billion in total liabilities. This is the highest combined value the protection fund has acquired to date.

At 11.2%, public equity was the top contributor to the fund’s fiscal gain, despite January’s selloff. The company did not disclose the returns for its other allocations in its fiscal report. The fund allocates 60% to cash and bonds, 19.6% to alternatives, which includes property, 10.5% to hybrid assets (investments with both liability hedging and growth asset attributes), and 9.4% to public equity.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Returns were smaller than the last fiscal year, which generated 3.9%.

Andy McKinnon, the protection fund’s chief financial officer, was pleased with the “strong financial results,” but expressed concerns with the pension world’s risks in a statement. McKinnon assured that the fund’s performance and growth proves it is keeping track of these worries.

Tags: Pension, Pension Protection Fund, Public Equity