Wednesday, May 25, 2016

Pension Plan Fail: The S&P Index is Up 5.1% Annualized for the Last Decade

It was only in 2012 that the largest of the public employee pension plans, CalPERS at $290.15 billion, was shamed into lowering their assumed rate of return to 7.5%. Way back in 2009's "Public pension funds’ rosy forecasts pose problems" we quoted the behemoth fund's response to criticism of their fantasy numbers:
Beware of the anti-pension ideologues who come out of the woodwork during market downturns. Like vultures, they prey on the highly charged and negative investment environment, looking for ways to convince you a temporary performance downturn will be typical for all time!...
CalPERS is on a June 30 fiscal year so folks are curious how this year's performance will compare with last year's 2.4%.

Here's the headline story from The Capital Spectator:

The Bounce-Back For 10-Year Equity Performance Has Less Bounce

The US stock market rebounded sharply yesterday, dispensing the biggest daily gain in two months. But the latest surge doesn’t change much for the trailing 10-year return, which remains well below its median for the rolling decade-long changes posted over the last 50 years. That may or may not be relevant for developing intuition about future performance, but it’s a reminder that the recovery in the US stock market in recent years still pales relative to previous boom in the 1980s and 1990s.

For some perspective, let’s review the evolution of the rolling 10-year annualized return for the S&P 500 over the past half century through yesterday’s close (May 24). Even after Tuesday’s 1.22% pop in the S&P, the index is up by a middling 5.1% annualized for the trailing decade (green line in chart below), according to Standard & Poor’s. That’s a respectable gain, perhaps, after adjusting for the economic environment in the post-2008 world order. But it’s mildly disappointing relative to the 7.3% median annualized 10-year return for the S&P for the past 50 years (blue line).
For another view, here’s how rolling 10-year S&P 500 returns stack up via a boxplot chart. The current 10-year performance is indicated by the green square below, which is moderately below the median (horizontal black line)....MORE
We have hundreds of posts on CalPERS and assumed returns, use the search blog box if interested.