Interest rate decline in 2Q boosted long-duration bond returns
August 10, 2016 — CHICAGO–(BUSINESS WIRE)–Northern Trust Universe data today revealed the second quarter of 2016 marked the third consecutive quarter of positive returns for institutional asset owners after two consecutive quarters of declines starting in the second quarter of 2015, with plan sponsors gaining approximately 1.9 percent at the median.
The 1.9 percent median return was a significant increase from the 0.7 percent median return recorded in the previous quarter.
The Northern Trust Universe tracks the performance of approximately 300 large U.S. institutional investment plans, with a combined asset value of approximately $899 billion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.
Since 1998, the average second quarter median return has been 1.7 percent, placing this quarter slightly above average. In the second quarter of 2016, Corporate ERISA plans fared best among all plan types with a median return of 3 percent. Public Funds gained 1.7 percent while Foundations & Endowments netted 1.5 percent in the second quarter.
“Differing returns across plan types were driven largely by the duration of their fixed income investments,” said Bill Frieske, senior investment performance consultant, Northern Trust’s Investment Risk & Analytical Services. “In an effort to de-risk their defined benefit pension plans, corporate ERISA plan sponsors have been lengthening the duration of their fixed income programs. Interest rates declined in the second quarter, which increased returns for long duration bonds and helped boost Corporate ERISA plan returns.”
Northern Trust’s findings generally showed:In an effort to de-risk their defined benefit pension plans, corporate ERISA plan sponsors have been lengthening the duration of their fixed income programs
- Non-U.S. equities returned -0.2 percent at the median, while U.S. equities returned 2.2 percent in the quarter.
- Corporate ERISA plans were helped by a larger allocation to U.S. fixed income (35 percent at the median), which returned 2.6 percent at the median.
- Public Fund returns were dampened by a larger allocation to international equities (15 percent at the median), which produced the lowest median return of the major asset classes.
- Foundations & Endowment returns were muted by weak performance from a significant allocation (11 percent) to private equity, the second lowest returning major asset class at 0.2 percent.
Longer-term returns as of June 30, 2016, are as follows:
Foundations & Endowments
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, and affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 22 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2016, Northern Trust had assets under custody of US$6.4 trillion, and assets under management of US$906 billion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit northerntrust.com or follow us on Twitter @NorthernTrust.
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