Institutional asset owners in the Northern Trust universe posted positive returns in the fourth quarter, thanks primarily to cooling inflation, lower interest rates and softening labor markets, with a median return of 7.3%, data released Feb. 7 showed.
For all of 2023, the universe posted double-digit returns, with an overall median return of 11.3% for the year ended Dec. 31, a stark reversal from 2022 when the universe posted an overall median return of -12.7%.
"The final quarter of 2023 saw markets rally as a result of the reduction in the pace of inflation and increased hopes that the U.S. market will be able to avoid a recession," said Amy Garrigues, Northern Trust's global head of investment risk and analytical services, in a news release. "Though market volatility posed many challenges for investors during the year, we saw this shift in the fourth quarter and ended on a positive note."
Northern Trust's domestic equity universe posted a median return of 8.5% for the quarter ended Dec. 31, which the news release said came from the Federal Reserve's guidance that interest-rate cuts may come sooner rather than later. Also during the quarter, small-cap stocks outperformed large-cap stocks, with the Russell 2000 index returning 14%, compared with the Russell 1000 index's return of 12%.
Northern Trust's U.S. fixed-income universe also posted positive returns for the fourth quarter with a median return of 5.3% for the quarter ended Dec. 31. The news release cited the U.S. 10-year government bond yield falling to 3.88% from 4.59% during the quarter and the two-year government bond yield falling to 4.25% from 5.03% as drivers for positive returns.
Corporate pension plans had the highest median return for the three months ended Dec. 31 at 9.5%, followed by public pension plans at 6.4%, and foundations and endowments at 5.5%.
For the one, three and five years ended Dec. 31, foundations and endowments in Northern Trust's universe returned a median annualized 11.3%, 5.2% and 9.1%, respectively; public pension plans, 10.6%, 4.6% and 8.3%; and corporate pension plans, 10.3%, -1% and 6.1%.
The Northern Trust universe consists of 406 U.S. institutional funds with combined assets of more than $1.4 trillion.
