Emerging markets equities sizzled in 2003, returning a whopping 46%, giving the pension funds that invested in them an enormous boost to their overall portfolios.
Indeed, it was not a bad year to be in foreign equities in general, with the Morgan Stanley Capital International Europe Australasia Far East index gaining a hefty 26.5% over the 12-month period ended Sept. 30. That topped domestic stocks, as the Russell 3000 returned 25.9%.
Collectively, the defined benefit plans among the 200 largest U.S. employee benefit plans reported $316 billion in active international investments as of Sept. 30, up 23.5% from $255.8 billion on an unadjusted basis from Sept. 30, 2002. Adjusted for the market surge, however, the growth was less than 1%. The top 200 plans had $283.6 billion in active international equities as of Sept. 30, up 30% overall from $218.8 billion as of Sept. 30, 2002, but up just 2.5% on a market-adjusted basis. And the funds reported $32.4 billion in international active bonds — down 12.4% on an unadjusted basis, a drop of 15.6% adjusted for the market — from a year earlier. (The Citigroup World Government Bond index, non-U.S., returned 3.69% for the year ended Sept. 30.)
In emerging markets, the defined benefit plan sponsors had $45.1 billion invested, up 48% on an unadjusted basis but only 2.2% on an adjusted basis, from the $30.4 billion reported as of Sept. 30, 2002.
They had $39.7 billion in emerging markets equity as of Sept. 30, up 55% unadjusted (6% adjusted), from $25.6 billion a year earlier. (The Morgan Stanley Capital International Emerging Markets Free index was up 46% for the same period.) And in emerging markets fixed income, the defined benefit plans reported a total of $5.4 billion as of Sept. 30, up 13% unadjusted, but down 19% when the 40.19% return of the J.P. Morgan Emerging Markets Bond Index Plus is taken into account.