Following a lackluster six months in both equity and bond markets overall, indexed assets managed by the leading index fund managers dropped 5.1%, a market-adjusted 5.6%, to $429.675 billion in the six months ended Dec. 1.
Only domestic fixed-income assets gained during the period, growing 11.3% to $108.658 billion. The Salomon Broad Bond Index returned -0.04% for the period.
Domestic equity indexed assets managed by the 55 managers in the survey suffered the biggest loss falling to $262.99 billion or 11.6%, when adjusted to a 0.83% growth in the Standard & Poor's 500 Stock Index.
While the return on the Morgan Stanley Capital International Europe, Australasia Far East Index was flat for the six months, dropping 0.02%, international equity indexed assets declined 3.2% to $56.74 billion. One year ago, assets in this class grew 14.5% in the six months despite the -1.12% return for the EAFE.
Measuring international fixed-income growth, the Salomon World Government Bond Index returned 4.65%, the strongest benchmark growth for this period, but international index bonds assets reported by the managers fell 7.8% to $1.285 billion.
Indexed assets managed by Wells Fargo Nikko Investment Advisors, San Francisco, a total of $140.9 billion, make up almost one-third of the indexed assets reported in the survey. The firm's overall assets were down a market-adjusted 5.7%
for the six-month period, most of that in equity, both domestic and international.
Wells' domestic fixed-income assets however grew 12.5% to $42.991 billion. Asset allocation shifts through the firm's tactical asset allocation strategies during the past six months would account for the shift in assets said Fred Grauer, chairman and chief executive officer. "The growth in fixed income is specific to client needs or strategy needs, not a statement on the market," he said.
Mr. Grauer believes plan sponsors will see the long-term benefits of indexing after a poor year like 1994 and that assets allocated to indexing will grow.
Avatar Associates, New York, also uses index funds in its TAA strategy. Of the $1.118 billion the firm has in the TAA strategy, 85% of the assets were in cash for its two-way equity/cash index funds and 65% cash in its three-way index funds, which has equity, fixed income and cash. With most of its assets in cash Dec. 1, Avatar had $186 million in equity index funds and $55 million in fixed-income index funds.
Total asset numbers from the previous index fund manager survey, which appeared in the Aug. 8 issue of Pensions & Investments, were adjusted to make this comparison. Assets managed by Sears Investment Management Co., Chicago, should not have been included, because the firm only manages assets for Sears, Roebuck and Co.'s pension fund, not for outside clients.
The results of P&I's recent survey of the nation's 200 largest pension funds showed a similar trend. Indexed assets managed both by outside managers and internally by fund staff dropped 4.8% to $391 billion on Sept. 30, from $410.8 billion in 1993 (P&I, Jan. 23). Among defined benefit plans in the Top 200, equity indexed assets dropped 8.9% when adjusted for the 3.69% growth in the S&P 500. Indexed fixed-income assets for the Top 200 defined benefit plans dropped 11% to $76.8 billion when adjusted to the 10.17% return of the Salomon index.
While index fund managers see growth in domestic defined benefit plans flattening, defined contribution plans and overseas pension funds increased their allocations to indexing in 1994.
Defined contribution plans within the Top 200 employee benefit plans increased their allocation to indexed equities by a market-adjusted 6.5% to $60.2 billion.
Index managers are finding new markets for their quantitative strategies with non-U.S. pension funds. Eleven of the index managers in the survey reported a total of $27.095 billion in indexed assets managed for non-U.S. pension funds, up 68% from $16.148 billion reported Dec. 1, 1993. Of these assets, $7.422 billion was indexed to U.S. benchmarks, up 38% from the previous year, and $19.673 billion was indexed to non-U.S. benchmarks, up 82% from the previous year.
Wells Fargo Nikko reported $11.457 billion in indexed assets managed for non-U.S. pension funds, up 224% from $3.535 billion in 1993. State Street Global Advisors, New York, reported assets were $10.106 billion, up 30% from $7.791 billion.