The Q4 2022 Investment Metrics Plan Universe – the industry’s most granular analytics tool for plan sponsors with data sourced directly from over 4,000 institutions – reported a bounce back in performance by all plan types for the quarter.
As noted in the December Factor Report, investor optimism faded in December as global central banks signaled their commitment to fight inflation by aggressively hiking rates. Slowing economic growth, layoffs, and fears of a recession in 2023 all contributed to negative investor sentiment.
While performance in the public equity markets turned negative in December, markets were up for the quarter resulting with the S&P 500 index returning 7.56%.
- For the calendar year 2022, the median gross return for all defined benefit plans, approximately 1,500 plans, was negative 14.1%. This was the worst calendar year performance since 2008.
- In Q4 2022 the median gross return for defined benefit plans was positive 5.2%. This comes after three straight quarters of negative performance.
- Corporate defined benefit plans had the worst performance over the year compared to other plan types, despite their relatively heavy allocation to US fixed income.
- Public equity performance bounced back strongly in Q4 2022, with a median gross return of positive 10%. This comes after a horrendous first three quarters for public equity.
- Not surprisingly, the Real Assets/Commodities asset class median gross return for defined benefit plans was positive 6.3%. Meanwhile, the Hedge Fund median return was negative 5.7%.
Plan Performance Over Time
The fourth quarter 2022 gross median return for the approximately 1,500 defined benefit plans in the Investment Metrics Plan Sponsor universe was 5.2%. This quarterly performance mitigated a devastating year for defined benefit plans. The 2022 gross median return was negative 14.1%. As a comparison, the Investment Metrics defined benefit plan sponsor universe had a gross median return of negative 24.1% in Q4 2008.
Historical Plan Comparison
Corporate defined benefit plans in the Investment Metrics plan sponsor universe had the most difficult time in 2022. This is surprising because based on our data, corporate defined benefit plans have the heaviest relative weighting to US fixed income compared to other plan types. Even though US fixed income did not provide the same the type of protection in years past when markets have fallen, they still provided better returns compared to public equities. As a result of the poor performance in 2022, many plans across all types will have trouble meeting their long-term target return figures.
Q4 Plan Allocation Analysis
Chart 3 examines the median allocations by plan type for the quarter. Corporate defined benefit plans maintain the heaviest weighting to the fixed income asset class by a substantial margin. This clearly did not help them in 2022. When comparing the asset allocation of Q3 2022 to Q4 2022 we saw public plans, endowments & foundations, and high net worth individuals shift their asset allocation from fixed income into public equities.
U.S. Equity Performance
The calendar year gross returns, at a median level, across all plan types was dismal. All plan types, with the exception of corporate defined benefit plans, maintain a significant weighting to US public equities with more than 30% of the total plan portfolio, at a median level. Comparing Q3 2022 to Q4 2022 we have seen Taft-Hartley plans along with endowments & foundations increase their allocations to US equity.
U.S. Fixed Income Performance
Surprisingly, corporate defined benefit plans had the worst performance, at a median level, over the year compared to all plan types. The median level gross return for corporate defined benefit plans for 2022 was negative 22.4%. We would assume that corporate plans had a higher exposure to long duration US fixed income securities because this was the poorest performing area of the US fixed income market. When comparing Q3 2022 to Q4 2022 we have seen an asset allocation shift out of US fixed income.
Most defined benefit plans, based on Investment Metrics Plan Universe data, have close to 10% of their portfolio allocated to the alternatives asset class. This area of the capital market has performed relatively better than public equities and fixed income asset classes. In particular, the allocation to real asset/commodities have been the best performing part of defined benefit portfolio in 2022.
About Investment Metrics Plan Universe
Investment Metrics Plan Universe is the industry’s most granular analytics tool for plan sponsors, including standard and custom peer group comparisons of performance, risk, and asset allocations by plan type and size. The custom plan universe-construction tool enables Investors, Consultants and OCIO’s to create more granular, apples-to-apples comparisons of similar plans by using selection criteria such as assets under management (AUM) and asset allocation bands. The data is sourced directly from over 4,000 institutions using our reporting and analytics solutions including investment consultants, advisors, and asset owners.
Plan Universe is updated quarterly and typically available on or near the following schedule: preliminary data available on the 14th business day after quarter end, a second cut on the 21st business day, and a final cut on the 29th business day. In addition, the data in this report goes back 20+ years.
Overview of the Q4 2022 data:
- Trust Funds, Corporates, Public Plans, Taft-Hartley, Endowments & Foundations, High Net Worth, Health & Welfare, and custom groups
- Asset Allocations broken into equity (US, global, global ex-US), fixed income (US, global, and global ex-US), alternatives, real estate (public and private), multi-asset and cash. Emerging Markets allocations are available for equities and debt securities
- Net and gross performances are displayed by quartile with total percentiles via download
- All information is aggregated by Plan Size
The material presented in this document is an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or any issuer or security or similar. This document contains general information only, does not consider an individual’s financial circumstances and should not be relied upon for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should always be given to consult a Financial Advisor before making an investment decision. Investment Metrics, a Confluence company, does not provide investment advice and nothing in this document should be considered any form of advice. Investment Metrics, a Confluence company, accepts no liability whatsoever for any information provided or inferred in this document.
About Investment Metrics, a Confluence company
Investment Metrics, a Confluence company, is a leading global provider of investment analytics, reporting, data and research solutions that help institutional investors and advisors achieve better financial outcomes, grow assets, and retain clients with clear investment insights. Our solutions drive insights across 20K+ institutional asset pools, 28K+ funds, 910K+ portfolios, representing $14T+ in AUA. With over 400 clients across 30 countries and industry-leading solutions in institutional portfolio analytics and reporting, style factor and ESG analysis, competitor and peer analysis, and market and manager research, we bring insights, transparency, and competitive advantage to help institutional investors and advisors achieve better financial outcomes. For more information about Investment Metrics, a Confluence company, please visit www.invmetrics.com.