“During a quarter that featured falling oil prices, a Bank of Canada rate cut and uneven global economic data, Canadian pension plans generated positive returns for the seventh consecutive quarter,” the RBC Investor & Treasury Services quarterly survey.
According to the $600bn RBC Investor & Treasury Services All Plan universe – the industry’s most comprehensive universe of Canadian pension plans – defined benefit (DB) pension plans returned 6.6% for the first quarter of 2015.
“Following the Bank of Canada’s surprise rate cut announcement in January, long term interest rates continued to fall. Even though their asset performance for the quarter was strong, Canadian pensions face growing pressure if asset returns fail to keep pace with liabilities,” said Scott MacDonald, managing director, Pensions, RBC Investor & Treasury Services.
The best performing asset class in the first quarter was Foreign Equities, which returned 12%, in line with the benchmark MSCI World Index return of 11.9%.
“While both US and non-US foreign equities delivered double digit returns for Canadian investors in the first quarter, the two segments had contrasting performance drivers: US equities were boosted by the US dollar appreciating 9.3% against the Canadian dollar, even as US markets stayed flat. Europe, on the other hand, benefitted from cheap oil, increasing exports, and the implementation of the European Central Bank’s Quantitative Easing program,” said MacDonald.
Canadian equities returned 2.3% for the quarter versus 2.6% for the benchmark TSX Composite Index. “Despite Financials and Energy declining, deal activity in the Health Care sector along with gains in IT and Consumer Discretionary helped offset those losses,” said MacDonald.
“As Canadian 10 year yields fell for the fifth consecutive quarter, Canadian pensions’ bond holdings returned 4.6%. Long-duration bonds continued to be the best performing segment, with the FTSE TMX Canada Long Term Overall Bond Index returning 7.1% for the quarter,” said MacDonald.