Canadian DB pensions report negative returns in Q1 2022

Equity and bond markets start year in the red due to geopolitical tensions, inflationary pressures, continued Covid crisis

TORONTO, April 29, 2022 — Canadian defined benefit pension plans closed the first quarter of 2022 in the red with a median return of -5.5%, the weakest quarterly return since Q1 2020 (-7.1%) according to the RBC Investor & Treasury Services All Plan Universe.

“The market experienced growing economic and geopolitical uncertainties during the first quarter of 2022,” said Niki Zaphiratos, Managing Director, Asset Owners, RBC Investor & Treasury Services. “Russia’s invasion of Ukraine has amplified existing investor anxiety over growing inflationary pressures and the Covid crisis.”

Global equity markets experienced significant volatility during the quarter, with the MSCI World Index returning -6.2% over that period. Concerns over higher interest rates and further disruptions to global supply chains resulted in growth style stocks (MSCI World Growth -10.7%) significantly underperforming value style stocks (MSCI World Value -1.8%).

Foreign equities in the RBC All Plan Universe returned -7.5% during the quarter. Strength in the Canadian dollar deepened some of the local currency losses for unhedged plans.

The Canadian equity market (S&P/TSX Composite +3.8%) benefitted from its large exposure to surging commodity stocks and was the only developed equity market to finish in positive territory over the quarter. Strength in the Energy (+28.7%) and Materials (+20.1%) sectors were somewhat tempered by losses in the Information Technology (-35.5%) sector. Canadian equities held by plans outperformed the broad market index and gained 3.9%.

Bond yields moved up sharply across the yield curve, as central banks moved away from the pandemic era ultra-loose monetary policies and signalled aggressive actions to combat growing inflationary pressures. The FTSE Canada Universe Bond Index lost -7.0% over the quarter, as long term bonds (FTSE Canada Long Term Bond Index -11.7%) underperformed short term bonds (FTSE Canada Short Term Bond Index -3.0%). The median RBC All Plan Universe Canadian Fixed Income return was -9.8%.

“The current geopolitical risk has compounded the existing headwinds facing pension plans – and we are now looking at the possibility of a sharp increase in interest rates which could lead to the devaluation of risky assets,” stated Zaphiratos. “Plan sponsors will need to tread carefully in the months ahead.”

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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) 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. As a financially strong partner, 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.

For more information, please contact:
Ylana Kurtz, 1 416 348 2330