Fixed income, alternative investments were powerful combo in Q1

The first quarter of 2025 brought a flurry of activity for investment managers, as concern around US trade policy saw equity markets fall and fixed income options proving more favorable.

And when bonds were combined with alternative asset allocations, it helped large US institutional investment funds to outperform peers that had larger allocations to equities according to the Northern Trust universe of 377 funds with assets of $100 million or more with a total asset value of $1.4 trillion.

Corporate funds fared much better than public ones with median returns of 2.2% and 1.1% respectively. Lagging were foundations and endowments at 0.5%.

Most of the funds had US equities as a core holding and these underperformed global peers.

The Northern Trust US Equity program universe posted a negative median return of -4.6% for the quarter, underperforming the S&P 500's return of -4.3% but surpassing the Russell 3000's return of -4.7%.

But the Northern Trust Non-U.S. Equity program universe achieved a positive median return of 4.9%, while the MSCI World Ex-US Net returned 6.2%.

Meanwhile, as interest rates fell during the quarter, the Northern Trust US Fixed Income program universe achieved a median return of 2.6% for the quarter.

“The first quarter of 2025 unfolded amid a backdrop of uncertainty, with US equities riding high at the start and then falling as new global tariffs in February and March shifted market sentiment,” said John Turney, Global Head of Total Portfolio Solutions, Northern Trust Asset Servicing. “Our Universe data shows that institutional plans with higher equity allocations struggled in comparison with plans that allocate more to fixed income and alternative asset classes.”