Robust gains in domestic and international equity markets led returns for institutional investors to reach a 10-year high in 2019, data from Northern Trust show.
The median plan in the Northern Trust Universe returned 18.2% for the year and 4.9% for the three months ended Dec. 31.
"Strong fourth-quarter performance in the U.S. and international equity markets drove stellar performance for both the quarter and the year," said Mark Bovier, regional head of investment risk and analytical services at Northern Trust, in a news release announcing the data.
"U.S. equity programs, the largest allocation in most plans in the Northern Trust Universe, had a median return of 8.9% in the quarter, while the median return for international equity programs was 9.2%," Mr. Bovier said. "Meanwhile, the U.S. fixed-income program universe median return was up 0.6% for the quarter. The 10-year Treasury Note yield rose from 1.7% to 1.9% during the quarter. However, short-term maturities, which are closely tied to monetary policy expectations, continued to fall, putting upward pressure of bond prices."
Corporate defined benefit plans reported the lowest median return for the quarter at 3.4%. Public DB plans saw a median return of 5.2% for the quarter. Foundations and endowments, meanwhile, produced a 4.9% median return in the fourth quarter.
Corporate DB plans returned 20.6%, 9.7% and 7.2% for the one, three and five years ended Dec. 31, respectively. Public DB plans' one-, three- and five-year returns were 18.2%, 9.8% and 7.3%, respectively. Foundations and endowments returned 16.2%, 9.2% and 6.8% for the one, three and five years ended Dec. 31.
Corporate DB plans benefited from substantial exposure to both equity and fixed income throughout 2019. The median U.S. equity allocation for corporate DB plans in the fourth quarter was 28.2% and international equity median exposure was 9%. U.S. fixed-income exposure ended the period at 36.9%, the largest allocation to bonds of any segment. While U.S. equity exposure remained significant for the universe, it was down from 36.5% five years prior.
Public DB plan median U.S. equity allocation for the fourth quarter was 34.2%. International equity median exposure was 15.5% and the median exposure to U.S. fixed income came in at 24.7%. The year-end equity exposure is consistent with those five years earlier, however U.S. fixed-income exposures have fallen over 4% as investors have reallocated to alternative asset classes.
Foundation and endowments had a median U.S. equity allocation of 28.6% in the fourth quarter. International equity median exposure was 9.5% and the median exposure to U.S. fixed income was 10.9%. Alternative assets were widely used by endowments and foundations, with private equity and hedge fund median allocations at 15% and 11.6%, respectively, as of Dec. 31.
The Northern Trust universe consists of about 300 large U.S. institutional plans with combined assets of about $1.13 trillion.