Equities provided institutions with a 2.3% median return in second quarter

Global equities were positive in the second quarter of 2023, providing a median return of 2.3% for institutional investors.

The stats are based on an analysis of more than 400 U.S. institutional asset owners in the Northern Trust All Funds Over $100 million plan universe, a group with more than $1.28 trillion in asset value.

“The Federal Reserve increased the fed funds rate by 25 basis points during the quarter and commented that future rates increases would be on the low end of investor expectations. This fueled optimism that inflation is receding,” said Amy Garrigues, global head of investment risk and analytical services at Northern Trust. “This, combined with continued U.S. GDP growth and global optimism in the technology sector resulting from advancements in artificial intelligence, allowed equity markets to post strong results for the quarter.”

The Northern Trust U.S. Equity Program universe generated a 7.6% median return for the second quarter. Large-cap stocks continued to outperform small cap stocks in the quarter, with the Russell 1000 large-cap index up 8.6% compared to the Russell 2000 small-cap index, which returned 5.2% for the quarter.

The Northern Trust U.S. fixed-income program universe median return was down 0.5% for the quarter.  Negative results were driven by an increase in interest rates, with the U.S. 10-year Treasury yield rising from 3.48% to 3.81%, and continued rising interest rates in developed markets, most notably in the UK and Australia, which experienced high inflation during the quarter.

ERISA plan universe median one-, three- and five-years returns were 3.6%, 1.9% and 4.4% respectively. The U.S. fixed-income asset class remains the largest holding in ERISA plans, with a median allocation of 52.8%, putting pressure on the segment returns relative to peers in the public funds and foundations and endowments segments, where U.S. fixed-income segment allocations are 22% and 8% respectively.

Public funds universe median multi-period returns for the one-, three- and five-year periods stand at 6.6%, 8.1% and 6.1% respectively. The median second quarter allocations to U.S. and international equity were 28.6% and 12.3% respectively. The median exposure to U.S. fixed income for public funds decreased to 21.5%.

Foundations and endowments universe median one-, three- and five-years returns were 7.3%, 9.4% and 7.1% respectively. The median U.S. equity allocation for the F&E universe increased to 19.2% during the quarter. The median allocation to private equity was 24.1%, while the median allocation to US fixed income fell to 8.3%.