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August 10, 2012 01:00 AM

Equities drag down investors' Q2 returns, BNY Mellon finds

Kevin Olsen
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    Returns of all segments in the BNY Mellon Master Trust Universe were negative for the second quarter with a median return of -1.47%, reversing strong first-quarter returns.

    It was only the third time in the last 12 quarters that the median plan has had a negative return, according to a news release.

    Only 20% of funds had a positive return for the quarter; 67% of funds were positive for the 12 months ended June 30. The previous quarter saw 99% of funds in the universe with positive returns.

    Real estate and fixed income were the top performers for the second quarter, but equity pulled down returns. Real estate had its 10th straight quarter of median positive returns, at 2.45%, followed by U.S. fixed income with a median 2.32%; non-U.S. fixed income, 0.65%; U.S. equity, -3.64%; and international equity, -7.07%.

    “Ten quarters is a lot,” John Houser, vice president and manager of performance and risk analytics for BNY Mellon, said in a telephone interview about the real estate returns. “I don't know if I'm surprised, but definitely we have not seen that before” in the history of the report, which started in 1990.

    Corporate pension plans had the highest return in the second quarter with a median -0.85%. Endowments had a median return of -1.53%, followed by public plans, -1.6%; Taft-Hartley plans, -1.65%; and foundations, -1.8%.

    For the year ended June 30, corporate pension plans had the highest median return at 3.82%, followed by Taft-Hartley, 1.94%; public, 1.14%; endowments, 0.58%; and foundations, 0.05%.

    The average allocation in the overall universe for the second quarter was 29% domestic fixed income, 28% domestic equity, 22% alternative investments/other, 16% international equities and 2% each international fixed income and real estate, and 1% cash.

    Corporate plans increased their fixed-income allocations a median six percentage points for the year ended June 30 while public plans doubled their alternatives allocations, Mr. Houser said. U.S. and international equities took the brunt of allocation decreases.

    The universe comprises 702 defined benefit funds, foundations, endowments and health-care plans. The trusts have a combined market value of $2.1 trillion and an average size of $3.1 billion.

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