Fixed Income Helps Master Trusts Weather Rough First Quarter

While plans with the highest fixed income allocation outperformed peers, few were unscathed.

Master trusts with the highest allocation to fixed-income investments weathered the rough first quarter better than others, according to BNY Mellon. However, few plans survived the quarter unscathed, as less than 5% posted positive results during the period.

“In the first quarter of 2020, US fixed income was the highest performing asset class, overweighting its peers by 22%,” Frances Barney, BNY Mellon’s head of global risk solutions, said in a release.

The BNY Mellon US Master Trust Universe lost a median 10.9% during the first quarter of 2020, a sharp reversal from a trend of positive quarterly performances during 2019 due to the economic impact of the COVID-19 pandemic. US Master Trust Universe plans reported a one-year loss of 2.65%, compared with three-year and five-year annualized returns of 3.71% and 4.01%, respectively.

Corporate plans were the top-performing plan type for the quarter, losing only 8.64% due to their higher allocation to US fixed income than other types of plans. At the other end of the spectrum, foundations were the worst performers among plan types losing 12.80% during the quarter as a result of having the lowest fixed-income allocation.

After corporate plans, health care plans were the next best-performing plan type, losing 9.56% during the quarter, followed by endowments, Taft-Hartley plans, and public plans, which lost 11.34%, 12.32%, and 12.54%, respectively.

US fixed income had a median return of 0.51%, while the Barclays Capital US Aggregate Bond Index returned 3.15%. The domestic fixed income investments significantly outperformed their non-US counterparts, which had a median loss of 12.19% for the quarter while the FTSE World Government Bond Non-US Index lost 1.88%.

US equities posted a median loss of 21.28% during the quarter, compared with the Russell 3000 Index’s loss of 20.90%. Non-US equities saw a median loss of 23.64%, compared with the FTSE Developed ex US Net Index’s loss of 23.17%. Real estate had a median return of 1.34%, while the NCREIF Property Index returned 0.71%.

Between the first quarter of this year and the first quarter of 2019, plans in the BNY Mellon US Master Trust Universe reduced their median asset allocation to US equities to 18.35% from 22.13%, and cut their allocation to non-US equities to 11.18% from 14.01%. Meanwhile, the plans boosted their allocation to private equity to 10.46% from 8.59%, while increasing their allocation to real estate to 12.62% from 11.87%, and they upped their average US fixed-income holding to 24.28% from 23.37%.

The BNY Mellon US Master Trust Universe consists of 519 corporate, foundation, endowment, public, Taft-Hartley, and health care plans with a total market value of more than $1.9 trillion and an average plan size of over $6.4 billion.

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