Briefly: “Money Managers Perform Better in Q2” and More of Wednesday’s News

According to Russell Investments, the investing environment was better for active managers overall in the second quarter of 2008 with 41% beating the benchmark—up from a record low of less than 20% in the first quarter.

“The environment was more favourable but still presented challenges for active managers because of its narrowness, with only the energy and materials sectors beating the benchmark,” says Kathleen Wylie, a senior research analyst at Russell Investments Canada. “Active managers, on average, are underweight those sectors which together account for almost half the index so this made it difficult to beat the benchmark.”

And if you look at what drove the market in the second quarter, it was the energy sector, which accounted for 6.1% of the 9.1% return of the S&P/TSX composite index. As a result, the median large cap manager return came in at 8.2%, which lagged the S&P/TSX return of 9.1%.

Growth managers significantly performed better than value managers in the quarter. Eighty-one percent of growth managers beat the benchmark compared to just 12% of value managers. That compares to just 25% of growth managers and 27% of value managers beating the benchmark in the first quarter of 2008. The median large cap growth manager return was 10.4% compared to the median value manager return of 4.7%.

“That degree of underperformance by value managers was the largest I’ve seen since the first quarter of 2000 during the technology bubble,” adds Wylie. “Value managers had significantly larger underweights to the top-performing energy and materials sectors compared to growth managers at the start of the quarter, which hurt their relative performance.”

Growth managers have been actively moving into the energy sector and had a weight similar to the index weight in energy while value managers were 3% underweight the sector on average.

Looking ahead to the current quarter, the environment has already started to improve for value managers as investors saw some life in the financials sector and a pull-back in resource stocks. Since value managers on average are roughly 3% overweight financials, 3% underweight energy, and 5% underweight materials, value managers have seen a notable improvement in their benchmark relative performance.

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Interest in Phased Retirement Programs Grows

As 25% of the American workforce nears retirement age, a survey finds that an increasing number of companies are considering implementing phased retirement programs.

Hewitt Associates’ survey reveals that 55% of mid-size and large employers say they have already evaluated the impact that potential retirements could have on their organization and 61% have developed—or will develop—special programs to retain targeted, near-retirement employees.

While just 21% believe that phased retirement is critical to their company’s human resources strategy today, that number nearly triples to 61% when employers look ahead five years.

According to Hewitt, 47% of companies say they have some type of phased retirement arrangement available to their employees, but only 5% have actually formalized those programs. Almost 40% expressed an interest in establishing a phased retirement program in the future.

With the rising tide of boomer retirees, employers will be losing key talent at a time when attracting and retaining skilled workers will be more important than ever.

“At the same time, rising medical costs, lengthening life spans and the declining prevalence of traditional pension and retiree medical benefits mean that employees will either have to work longer, save more or live with significantly less than they are accustomed to,” explains Allen Steinberg, a principal at Hewitt Associates. “As these trends converge, we believe phased retirement programs will continue to become more attractive options for both employers and employees—they provide employers with new ways to retain critical talent and, at the same time, help employees meet their needs.”