New York, November 2, 2006
US equity markets rose during the third quarter, as inflationary fears subsided predominately due to the decline in oil prices. At the same time, the Federal Reserve halted its interest rate increases. The decline in oil prices has been a welcome relief to consumers and has immediately improved confidence, easing fears of a slowdown in economic activity. Another concern is the housing market, which remains vulnerable to mortgage rate resets, finds a new analysis by Mercer Investment Consulting (Mercer IC).
Mercer IC’s third-quarter 2006 Defined Contribution Universe Summary found gains in most equity markets during the quarter. The quarterly report analyzes returns of various funds and helps institutional investors evaluate their mutual fund managers’ performance against other funds and asset class benchmarks.
Benchmark performance
The S&P 500® Index gained 5.7%, while the fixed income asset class turned in a positive quarter with the Lehman Aggregate posting a 3.8% gain. Money market instruments, as measured by the 3-month T-Bill rate, rose 1.2% while the balanced asset class, using a benchmark of 60% S&P 500/40% Lehman Aggregate, posted a gain of 4.9%. International equity markets (MSCI EAFE®) gained 3.9% during the quarter.
The international equity asset class underperformed US equities for the quarter by 1.8%. Global equities (MSCI World) gained 4.5% for the quarter and outperformed international equities by 60 basis points.
Capital market returns remain solidly positive over the long term. Over a 10-year time frame, the S&P 500 Index returned 8.6% while the Russell 2000 Index returned 9.1%. International equity markets produced a smaller gain of 6.8% over a 10-year time frame, lagging their US counterparts. Over a 10-year period, the fixed income asset class produced a return of 6.4%, below US equity returns over the same time period but with significantly less risk.
Mutual fund performance
During the third quarter, value funds outperformed growth funds, as the median large cap value fund posted a gain of 5.4% compared to a gain of 2.7% for the median large cap growth fund. The small cap segment of the market trended in the same direction relative to large cap stocks, as the median small cap value fund outperformed the median small cap growth fund by a margin of 240 basis points.
The median large cap fund underperformed the S&P 500 Index for the third quarter by 140 basis points. Small cap funds underperformed their large cap counterparts for the quarter, as the median small cap fund lost 0.8% for the quarter versus a gain of 4.3% for the median large cap fund.
Within the international equity asset class, the median manager underperformed the index by 10 basis points during the quarter. The median emerging markets manager gained 4.9% for the quarter and underperformed the index by 10 basis points.
The median core fixed income fund underperformed the index by 20 basis points for the third quarter.
About the survey
The Defined Contribution Universe Summary is published quarterly by Mercer Investment Consulting, Inc. The survey is intended to provide marketplace participants with summarized performance data for the most recent quarter and historical periods. Fund performance data are provided at the asset class and sub-asset class level. Fund universes are courtesy of Manager Performance Analytics (MPA), Mercer IC’s proprietary manager database, using return data from Morningstar.
The Defined Contribution Universe Summary may be downloaded free of charge from www.mercerIC.us. Please note: Allperformance is measured in US dollars, after investment management fees are deducted.
Mercer Investment Consulting is a leading global provider of investment consulting services, and offers customized guidance at every stage of the investment decision, risk management, and investment monitoring process. It has been dedicated to meeting the needs of clients for more than 30 years, and works with the fiduciaries of pension funds, foundations, endowments and other investors in some 35 countries.
Mercer Investment Consulting is a unit of Mercer Human Resource Consulting, an operating company of Marsh & McLennan Companies, Inc. (MMC). MMC lists its stock (ticker symbol: MMC) on the New York, Chicago, Pacific and London stock exchanges.
Visit Mercer IC online: www.mercerIC.us The HR industry´s premier online community and resource for Human Resource professionals: HR, human resources, HR community, human resources community, HR best practices, best practices in human resources, online communities for HR, HR articles, HR news, human resources articles, human resources news, HR events, leadership, performance management, staffing and recruitment, benefits, compensation, staffing, recruitment, workforce acquisition, human capital management, HR management, human resources management, HR metrics and measurement, organizational development, executive coaching, HR law, employment law, labor relations, hiring employees, HR outsourcing, human resources outsourcing, training and development
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