Northern Trust Universe Data: Market Momentum Stalls as Inflation Concerns Persist in Q2

Rhea-AI Summary

Northern Trust's Q2 2024 data shows subdued global equity market returns, with institutional asset owners in the Northern Trust All Funds Over $100 million plan universe seeing a median return of 1.1%. The Foundation and Endowment universe had a 1.3% median return, Public Funds were up 1.2%, while the Corporate (ERISA) universe was nearly flat at 0.01%.

U.S. equities had mixed results, with growth companies tied to AI performing well. The U.S. Equity Program universe had a 1.9% median return. Large-cap stocks outperformed small-cap, and the U.S. Fixed Income program universe median return was up 0.3%. Fiscal year-end returns for various segments were reported, with Foundations & Endowments showing the strongest performance across one-, three-, and five-year periods.

Positive

• Institutional asset owners in the Northern Trust All Funds Over $100 million plan universe saw a median return of 1.1% in Q2 2024
• Foundation and Endowment universe had a 1.3% median return in Q2
• U.S. Equity Program universe produced a 1.9% median return for Q2
• Foundations & Endowments universe median one-year return was 10.6%
• Public Funds universe median one-year return was 9.3%

Negative

• Corporate (ERISA) universe median return was nearly flat, up only 0.01% in Q2
• Small cap stocks underperformed, with the Russell 2000 small cap index returning -3.3% in Q2
• The yield of the US Ten-Year Government Bond increased from 4.21% to 4.39% over Q2
• ERISA plan universe median three-year return was negative at -2.1%

Insights

Financial Analyst

The Q2 2024 market performance reflects a cooling of momentum compared to Q1, with institutional investors seeing modest gains. The 1.1% median return for large U.S. institutional plans indicates stagnation in growth. This aligns with persistent inflation concerns and anticipation of Fed rate cuts.

Notable is the divergence in performance across different fund types. F&E and Public Funds saw slight gains (1.3% and 1.2% respectively), while ERISA plans barely broke even (0.01%). This disparity likely stems from varying asset allocations, with ERISA's heavy fixed income exposure (55.9%) potentially hampering returns in a rising yield environment.

The longer-term picture shows significant differences in performance, with F&E's 5-year return at 8.4% compared to ERISA's 3.7%. This underscores the impact of asset allocation strategies on long-term performance, particularly the role of alternative investments like private equity in boosting returns.

Market Research Analyst

The Q2 2024 data reveals interesting sector dynamics. Growth companies, particularly those in AI, outperformed, while materials and industrials lagged due to inflation concerns. This sector rotation suggests investors are prioritizing innovation-driven growth over traditional cyclical sectors.

The size factor was also prominent, with large caps (3.6% return) significantly outperforming small caps (-3.3%). This divergence could indicate a flight to quality amidst economic uncertainty, favoring established companies with stronger balance sheets.

Fixed income markets showed resilience despite rising yields, with positive returns across government, investment grade and high yield bonds. This suggests investors are seeking yield while remaining cautious about equity exposure. The slight decline in F&E's private equity allocation (22.1%) may indicate a rebalancing after strong equity performance, rather than a shift in strategy.

CHICAGO--(BUSINESS WIRE)-- Global equity market returns were subdued in the second quarter of 2024, a departure from the strong results observed in the first quarter, as global inflation remained a key area of concern. The median return for institutional asset owners included in the Northern Trust All Funds Over $100 million plan universe was 1.1% for the quarter ending June 30, 2024.

The Northern Trust Universe tracks the performance of 388 large U.S. institutional investment plans, with a combined asset value of more than $1.4 trillion, which subscribe to performance measurement services as part of Northern Trust's asset servicing offerings.

The Northern Trust Foundation and Endowment (F&E) universe produced a 1.3% median return in the second quarter, while the Northern Trust Public Funds universe median return was up 1.2% and the Northern Trust Corporate (ERISA) universe median return was flat, up only 0.01%.

"Institutional investors benefited from the equity market rally in the first half of the year, ahead of fiscal year-end for many plans on June 30," said John Turney, Global Head of Total Portfolio Solutions. "However, as 2024 progresses, it’s clear investors remain focused on inflation as they await further rate cuts from the Fed.”

U.S. equities posted mixed results during the quarter as investors favored growth companies tied to artificial intelligence, while materials and industrials fell due to inflation concerns. The Northern Trust U.S. Equity Program universe produced a 1.9% median return for the second quarter. Large cap stocks outperformed small cap stocks, with the Russell 2000 small cap index returning -3.3%, compared to the Russell 1000 large cap index which was up 3.6% for the period.

The Northern Trust U.S. Fixed Income program universe median return was up 0.3% for the quarter. The yield of the US Ten-Year Government Bond increased from 4.21% to 4.39% over the same period. Within the domestic market, bonds in the U.S. Government, Investment Grade, and High Yield categories posted positive returns, primarily due to declining bond prices.

The end of the second quarter, June 30, marks the conclusion of the fiscal year-end reporting cycle for numerous pension funds, foundations, and endowments within the Northern Trust universes.

Foundations & Endowments universe median one, three- and five-year returns were 10.6%, 3.4% and 8.4%, respectively. The median allocation to private equity was 22.1%, a slight decline from the prior quarter, resulting from strong returns in the equity asset class. The median allocation to hedge funds was 8.7%.

Public Funds universe median returns for the one-, three- and five-year periods stood at 9.3%, 3.1% and 7.1%, respectively. The median allocation to U.S. and international equity were 27.4% and 12.6%, respectively, while the median exposure to U.S. fixed income held steady at 22.4% and strong performance in equities lowered the segment’s median private equity allocation to 13.7%.

ERISA plan universe median one-, three- and five-years returns were 5.0%, -2.1% and 3.7%, respectively. The segment’s large median allocation to the US fixed Income asset class (55.9%) resulted in underperformance relative to other client segments. ERISA clients continue to have small allocations to alternative assets, where the median allocation to private equity is 1.9%.

Results as of June 30, 2024:
	2nd Qtr.	1Yr	3Yr	5Yr
ERISA	0.0%	5.0%	-2.1%	3.7%
Public Funds	1.2%	9.3%	3.1%	7.1%
Foundations & Endowments	1.3%	10.6%	3.4%	8.4%

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 24 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2024, Northern Trust had assets under custody/administration of US$16.6 trillion, and assets under management of US$1.5 trillion. For more than 130 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit us on northerntrust.com. Follow us on X (formerly Twitter) @NorthernTrust or Northern Trust Corporation on LinkedIn.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/terms-and-conditions.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240808866420/en/

Europe, Middle East, Africa & Asia-Pacific:

Camilla Greene

+44 (0) 20 7982 2176

Camilla_Greene@ntrs.com

Simon Ansell

+ 44 (0) 20 7982 1016

Simon_Ansell@ntrs.com

US & Canada:

John O’Connell

+1 312 444 2388

John_O’Connell@ntrs.com

http://www.northerntrust.com

Source: Northern Trust Corporation

FAQ

What was the median return for institutional asset owners in the Northern Trust All Funds Over $100 million plan universe in Q2 2024?

The median return for institutional asset owners in the Northern Trust All Funds Over $100 million plan universe was 1.1% for the quarter ending June 30, 2024.

How did the Northern Trust Foundation and Endowment (F&E) universe perform in Q2 2024?

The Northern Trust Foundation and Endowment (F&E) universe produced a 1.3% median return in the second quarter of 2024.

What was the performance of the Northern Trust U.S. Equity Program universe in Q2 2024?

The Northern Trust U.S. Equity Program universe produced a 1.9% median return for the second quarter of 2024.

How did large-cap stocks compare to small-cap stocks in Q2 2024?

Large-cap stocks outperformed small-cap stocks, with the Russell 1000 large cap index up 3.6% compared to the Russell 2000 small cap index returning -3.3% for the period.

What were the one-, three-, and five-year returns for the Foundations & Endowments universe as of June 30, 2024?

The Foundations & Endowments universe median one-, three-, and five-year returns were 10.6%, 3.4%, and 8.4%, respectively, as of June 30, 2024.