Negative fixed income returns offset solid equity gains
TORONTO, April 29, 2021 — Amidst an improved economic outlook – partially attributable to early phase vaccine rollouts and ongoing government support – Canadian DB pension plans posted a -0.2% median return in Q1 2021, according to the RBC Investor & Treasury Services All Plan Universe. The loss came on the heels of a Q4 2020 return of 5.4% and an annual 2020 return of 9.2%.
As projections pointed to higher expected growth, investors readied themselves for mounting inflationary pressure, causing bond yields to move up sharply and fixed income securities to lose ground. Fixed income assets held by pension plans posted a median return of -7.1% in Q1 2021, compared to 1.1% in Q4 2020. The FTSE TMX Universe Canadian Bond Index returned -5.0%, with interest-rate-sensitive longer-dated bonds (FTSE TMX Long Term index -10.7%) underperforming their shorter-dated bond counterparts (FTSE Short Term index -0.6%).
Global equity markets continued to rally and hit new highs during this time period. For the second consecutive quarter, value stocks – pro-cyclical in nature – outperformed growth stocks (MSCI World Value 8.1% versus MSCI World Growth -1.1%). Sectors that were hit hard by the pandemic continued to recover on account of reopening optimism.
Canadian DB plans’ foreign equities returned a modest 3.7% in Q1 2021, as a strengthening loonie trimmed some of the local currency returns for unhedged plans. In comparison, the MSCI World index returned 3.5% over the quarter.
Canadian equities benefitted from their significant exposure to cyclical sectors and delivered solid gains in Q1, posting 8.6%. The TSX Composite index posted an 8.1% gain, led by the energy (+20.3%) and financials (+13.9%) sectors.
“We have seen the markets price in a very optimistic economic scenario based on forecasts of strong GDP growth, the gradual ramping up of the vaccine supply and fiscal and monetary stimulus,” said David Linds, Managing Director and Head of Asset Servicing, Canada, RBC Investor & Treasury Services. “However, plan sponsors should continue to be on guard for risk factors such as the emergence of potent Covid-19 variants and supply constraints in a highly competitive global vaccine market.”
Historic performance
| Period | Median return (%) | Period | Median return (%) |
|---|---|---|---|
| Q1 2021 | -0.2 | Q4 2018 | -3.5 |
| Q4 2020 | 5.4 | Q3 2018 | 0.1 |
| Q3 2020 | 3.0 | Q2 2018 | 2.2 |
| Q2 2020 | 9.6 | Q1 2018 | 0.2 |
| Q1 2020 | -7.1 | Q4 2017 | 4.4 |
| Q4 2019 | 2.0 | Q3 2017 | 0.4 |
| Q3 2019 | 1.7 | Q2 2017 | 1.4 |
| Q2 2019 | 2.7 | Q1 2017 | 2.9 |
| Q1 2019 | 7.2 | Q4 2016 | 0.5 |
About the RBC Investor & Treasury Services All Plan Universe
RBC Investor & Treasury Services has managed one of the industry’s largest and most comprehensive universes of Canadian pension plans for more than 30 years. The All Plan Universe, a widely-recognized performance benchmark indicator, tracks the performance and asset allocation of a cross-section of assets across Canadian defined benefit pension plans. The All Plan Universe is produced by RBC Investor & Treasury Services’ Risk & Investment Analytics service, which delivers independent and cost effective solutions that help institutional investors monitor investment decisions, optimize performance, reduce costs, mitigate risk and enhance governance.
About RBC
Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 86,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank, and one of the largest in the world based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our 17 million clients in Canada, the U.S. and 34 other countries. Learn more at rbc.com.
About RBC Investor & Treasury Services
RBC Investor & Treasury Services (RBC I&TS) is a financially strong partner that provides asset and payment services to corporate investors and financial institutions globally. Trusted with CAD 4.6 trillion in assets under administration, clients are at the heart of our service offering. With offices in 16 countries, our focus is on safeguarding client assets as we leverage data and technology solutions to deliver meaningful insights, simplify our clients’ operations and support their growth.
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For more information, please contact:
Ylana Kurtz, 1 416 348 2330, ylana.kurtz@rbc.com