Article: Investment Market Insights: 5-Year Plan Performance Comparison

Scott Treacy | March 5, 2020

As everyone knows asset allocation decisions have a significant impact on an investment portfolio’s performance (against peers and its benchmark). We reviewed the average asset allocation and performance over five years, through December 2019, for each plan within the Investment Metrics database and compared them. We reviewed only those plans with more than $10M in plan assets. The analysis reviewed 893 plans that included corporate, public, endowment & foundations, and Taft-Hartley plans.


We compared the top and bottom decile ranked performers based on five-year return figures, and reviewed their asset allocations during this time to see where they differed. Not surprisingly, the top performing plans had an average allocation of 53.6% to public equities compared to the bottom performers’ allocation of 31.2%. The average allocation to US equity across the entire peer group was 46%. The Russell 3000 Index had a 5 year annualized return of 11.2% through December 2019 while the MSCI ACWI ex. US IMI index had a return of 6.2%. These performance figures are significantly higher than what we see from other asset classes. Additionally, the top decile ranked performers had a higher allocation to real estate in their portfolio. The NCREIF Property index provided investors a five year annualized return of 8.3%. Conversely, the bottom decile ranked performers had a much more conservative allocation with an average weight to US fixed income of 49.3%. The Bloomberg Barclays Aggregate Index provided investors a paltry five-year annualized return of 3.1%. The plan types with an abundant allocation to US equity tended to be corporates and endowments & foundations. Surprisingly, many corporate plans also had a considerable weighting to US fixed income, which suggests there are many divergent approaches to asset allocation even within the plan type segments.

Performance by Plan Type

Corporate plans made up 52% of the top decile performers. Interestingly, these plans did not have a heavy allocation to US equity, but they did have a high allocation to the alternative asset class. The alternative asset class includes private equity/debt, commodities, hedge funds, MLP’s, natural resources, etc. This suggests their investments in this area were very successful. Comparatively, endowments & foundations made up most of the bottom decile performers at 43% of the group. Similar to corporate plans, these plans also had a high allocation to alternatives, but, presumably, their investments did not do as well. Taft-Hartley plans in the bottom decile had a sizable weight to US fixed income with an average allocation from this group of 60%. Those plans that managed their portfolio conservatively (high US fixed income allocation) and did not select well with their alternative investments tended to underperform their peers over the long-term.

5 Year Risk-Adjusted Return

Many of the bottom decile rank plan performers had very low standard deviation figures. We saw a concentrated group of corporate plans and Taft-Hartley plans with five year standard deviation figures below 5%. The poor plan performers had an average allocation of 50% to US fixed income, which partly explains the lower standard deviation figures compared to the peer group median standard deviation of 6.7%. The endowments & foundation plans in the bottom decile group had much higher standard deviation figures. This means not only did they not perform well against peers but it was a much more volatile ride. Many of the top performers had higher standard deviation figures compared to the peer group, but this is a result of their higher allocation to public equities.


In closing, those plans that maintained a higher allocation to public equities compared to all other asset classes tended to outperform their peers. In particular, an allocation to US public equities was a tailwind for overall plan performance. Some plans may be overestimating the importance of investing in alternatives, especially when considering the long-term performance investors receive from public equities.


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