Canadian pension returns advanced slightly in Q3

Canadian pension returns advanced slightly in Q3 despite global supply chain disruptions, higher input costs and growing labour shortages

TORONTO, October 29, 2021 — Market sentiment turned decidedly negative in September, counteracting the majority of advances made in July and August, according to the latest analysis from the RBC Investor & Treasury Services All Plan Universe. Defined benefit (DB) pensions returned 0.6% for the quarter ending September 30, 2021, bringing the year-to-date results to 4.5%.

“Market volatility returned in September on account of global concerns over the impact of labour shortages, strained supply chains and rising consumer prices – all due to the Covid-19 Delta variant,” stated Niki Zaphiratos, Managing Director and Head, Asset Owners, Client Coverage, Canada, for RBC Investor & Treasury Services.

The Canadian equities asset class returned a modest 1.5% over the quarter but was up an impressive 18.3% on a year-to-date basis. In comparison, the S&P/TSX Composite Index was up 0.2% in the quarter; the top performing sectors in the benchmark were Energy (40.9% on a year-to-date basis), Consumer Staples and Industrials, while the laggards were Materials (due to weakness in gold stocks) and Consumer Discretionary.

Foreign equities held by Canadian DB plans kept pace with Canadian equities and gained 1.4%, but trailed the MSCI World Index, which advanced 2.3% in the quarter. Unhedged Canadian pension plans benefitted from weakness in the Canadian dollar, which depreciated against most major trading currencies over the quarter. For the second quarter in a row, growth stocks (MSCI World Growth 3.1%) outperformed value stocks (MSCI World Value 1.5%). From a regional perspective, US stocks continued to outperform their non-US developed market counterparts. Emerging market stocks ended up in negative territory (MSCI Emerging Markets -6.0%), primarily due to steep losses in the Chinese market.

Fixed income securities experienced a slight decline, losing -0.8% in the quarter, and were down -5.7% over nine months. Government bond yields rose in September, while credit spreads remained generally unchanged. As a result, corporate bonds outperformed government bonds and longer duration bonds underperformed their shorter duration counterparts.

“Investors are watchful in anticipation of a debt limit showdown in December and the ongoing struggles to reach an infrastructure deal and funding agreement in the US,” said Zaphiratos. “Central banks are already moving away from some of the ultra-loose monetary policies as inflation pressures persist. In response, plan managers have been increasingly investing in a greater variety of asset classes such as private equity, real estate and infrastructure that can hedge against inflation.”

Historic performance

Period Median return (%) Period Median return (%)
Q3 2021 0.6 Q2 2019 2.7
Q2 2021 4.4 Q1 2019 7.2
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

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 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 4.7 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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