The Markets December 5, 2011

Callan DC Index Suffers Loss in Third Quarter

 The Callan DC Index suffered a loss of 11.45% in the third quarter of 2011.   
Reported by

Even with the average defined benefit (DB) plan setting the bar low, with a -7.08% quarterly return, the DC Index still trailed by nearly 4.5 percentage points. This widened the performance spread between the DC Index and the average DB plan to 2.3 percentage points since the inception of the DC Index in 2006.

Even given this poor performance, the DC Index still bested the average 2030 target-date fund during the third quarter. This continues a longer-term trend whereby the average comparable target date fund has tended to underperform the DC Index during market downturns and outperformed in market rallies.

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This is largely attributable to target-date funds having considerably more in equities than the average DC participant’s portfolio. The average 2030 fund currently has 78% in equities, compared to 61% in the DC Index. Participants’ lower equity allocations may reflect both greater risk aversion and failure to rebalance during down markets. The net result of this phenomenon during the very volatile, nearly six-year duration of the DC Index is that target date funds have underperformed by an average 60 basis points annually (0.75% versus 1.35%).

Since inception, total annualized growth of participant balances stands at 4.47%, with about 70% due to plan sponsor and participant contributions. Returns have only contributed 1.35% of the total. Given market weakness, programs that help participants increase deferral levels (e.g., automatic contribution escalation) are more important than ever. 

Despite the market turmoil, participant reaction was muted in the third quarter. Overall, DC Index turnover was in line with the historical average at 0.71%. When money moved, it generally fled into capital preservation vehicles, with money market and stable value funds accounting for nearly half of all inflows. Domestic equity funds (large and small/mid cap) lost the most assets during the third quarter, comprising two-thirds of outflows during that period. While target-date funds continued to see net inflows during the quarter, balanced funds experienced net outflows. Target-date funds remain the only asset class in the DC Index that have avoided net outflows on a quarterly basis—undoubtedly due in large part to the inertia of people automatically enrolled in such funds.

With assets flowing to fixed income during the quarter and equity markets declining, the overall share of equities in the DC Index fell to 61%, a low not seen since mid-2009. Large cap equity funds continued to house the majority of assets; however, with frequent, significant outflows over time, large cap funds’ share of assets within the DC Index has fallen from 32% to 23% since inception.

Data & Research December 5, 2011

Majority of Advisers Fear an Obama Victory

Asked to name what they fear most about the 2012 election, the majority of adviser respondents to a Brinker Capitol poll said “Obama’s re-election.”  
Reported by

Brinker Capital, an investment management firm, released the results of its third quarter 2011 Brinker Barometer, a gauge of financial adviser confidence and sentiment regarding the economy, investing and market performance. Respondents were asked to reflect on key financial issues related to 2011, and to share their thoughts on the upcoming White House race.

“Growth and income are not clients’ top priorities any longer. Instead, what advisers say is keeping their clients awake at night is portfolio volatility. They want a smoother ride, and they want it now. Based on this priority, 54% of advisers who responded to the Barometer said they plan to increase their clients’ allocation to alternative investments in the coming year,” said John Coyne, president of Brinker Capital.

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While advisers continue to view the country as being far from secure on its economic footing, 64% said their clients today are financially better off than they were in 2008-2009.

Asked to name what they fear most about the 2012 election, the majority of respondents (56%) said “Obama’s re-election,” followed by “continued gridlock in the next administration” (32%) and “a growing Tea Party influence” (7%).

Looking at the current candidate roster, Mitt Romney received the greatest support with 36%, followed by Herman Cain (22%)* and Barack Obama (16%). Eighty percent of respondents said that a candidate’s religion should not be a significant factor in judging their presidential qualifications.

When asked to name the one issue on which they would tell their favorite candidate to focus, 92% of advisers said "economic improvement through job growth." "Social values" (5%) and "stay the course and support the current administration's policies" (3%), came in distant second and third places.

Advisers did praise the Obama administration for what they saw as major accomplishments: 81% said "killing Bin Laden and other top Al-Qaeda operatives," followed by "economic stimulus package" and "health care reform (7% each), and "intervention in Libya" (3%).

Asked what they believed was the administration's greatest disappointment thus far, almost half of the respondents (46%) said "lack of job creation," followed by "inability to reduce the deficit" (33%), "compromise with Congress" (12%), "reform of major banks and Wall Street" (8%) and "inability to end the war in Afghanistan" (2%).

There was some division among respondents to the question of "who's most responsible for stifling U.S. economic growth," with 34% answering "the Obama administration," 24% noting "partisan politics," and 17% pointing to "government over-regulation."

One third of advisers (32%) think the financial markets will perform better in the final year of the Obama administration than in the previous three; 39% believe "market performance will be the same," and 29% said "worse."

The study was conducted online by Brinker Capital in October 2011 and was responded to by 427 financial advisers.

*Survey was conducted prior to Mr. Cain's suspension of his presidential bid.

 

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