Large master trusts beat smaller peers in Q3, Wilshire finds

Size does matter — at least in the short term.

Large master trusts returned a median 11.88% in the quarter ended Sept. 30, topping their smaller peers, which returned a median 9.99% for the period, according to the Trust Universe Comparison Service of Wilshire Associates Inc.

Longer term, however, that “size effect” evens out, noted Hilarie Green, managing director with Wilshire Associates and head of Wilshire Performance Reporting, a division of Wilshire Analytics, Santa Monica, Calif.

Large master trusts (those with more than $5 billion) had a median return of 0.51% for the 12 months and an annualized return of 4.35% for the 10 years, both ended Sept. 30. Smaller trusts (those with less than $1 billion) had a median of 1.14% and an annualized 4.28%, respectively.

Size was the bigger difference in terms of trends during the quarter, more than sponsor type or asset allocation. “Clearly, the larger, more sophisticated plans did better,” Ms. Green said.

The impact of asset allocation on performance was lessened in part during the quarter because of the wide range of returns within asset classes depending on style factors. For example, she noted the median return of large-cap growth managers for the quarter was 14% among the full TUCS universe, while small-cap value managers had a median return of 22.61%. Among fixed-income managers, the median return for short-term accounts was 1.4% compared with 11.11% for high yield.

That trend held in almost every asset class in the third quarter, she said. In other quarters, the range of returns among styles within a single class has been much tighter.

Longer term, however, asset allocation made a bigger difference, Ms. Green said. The median total return among all equity managers was -5.42% in the year ended Sept. 30, compared with 11.42% for fixed-income managers.

By type of plan, corporate plans were the best for the quarter, with a median 11.76% return, compared with 11.39% for public funds; 10.31% for endowments and foundations; and 8.53% for Taft-Hartley funds.

On the strength of two up quarters, institutional investors generally reported positive returns for the year ended Sept 30. The median return for the year for all master trusts was 1.05%. Corporate funds reported a median of 1.08%; public funds, 1.27%; and endowments and foundations, 1.27%. The exception was in the Taft-Hartley universe, where the median return for the year was -1.01%.

Ms. Green said that Taft-Hartley fund returns were dragged down by their large allocation to real estate. The median allocation to real estate of Taft-Hartley funds in the TUCS universe was 8.18%, compared with 1.62% for public funds.

The Russell 3000 returned 16.31% for the quarter and -6.42% for the year; the Morgan Stanley Capital International Europe Australasia Far East index returned 19.47% and 3.23%; the Barclays Capital Government Credit bond index, 4.16% and 11.46%; and the Citigroup non-U.S. World Government Bond index, 7.33% and 16.07% ,in the respective periods.

When broken out by fund category, however, larger ones didn't always hold sway.

Corporate funds with more than $1 billion had a median return of 11.58% for the quarter and 1.61% for the year, compared to a median 11.76% and 2.35% for the quarter and year, respectively for those with less than $1 billion.

In the public fund universe, funds with more than $5 billion had a median return of 11.39% in the quarter and 1.27% for the year, while those with more than $1 billion returned 11.55% in the quarter and 0.51% for the year, compared with 11.38% and 2.73%, respectively, for their peers with less than $1 billion.

For Taft-Hartley funds, the median of funds with more than $1 billion was 8.53% for the quarter and -0.92% for the year, while the funds with less than $1 billion reported 8.28% for the quarter and -1.01% for the year.

And for endowments and foundations, those with more than $1 billion reported a quarterly median of 10.09% and a one-year median of 1.28%, while their smaller peers reported 10.36% and 1.27%, respectively.

TUCS has a universe of about 1,100 plans representing $2.25 trillion in assets.