Canadian pensions post fifth consecutive quarter of gains
August 8, 2017

Canadian defined benefit pension plans remained resilient in the face of weakening domestic equities, with second quarter returns of 1.4 per cent, according to Q2 2017 figures from RBC.

Tracking C$650 billion of assets under management, the RBC Investor & Treasury Services All Plan Universe is the most comprehensive overview of Canadian Defined Benefit pension plans.

Canadian equity returns slipped into negative territory with returns of -1.9 per cent in Q2 2017, compared with 2.3 per cent for the previous quarter, mirroring the TSX Composite Index which reported -1.6 per cent in Q2 2017, down from previous gains of 2.4 per cent.

"Despite positive economic indicators of a healthy Canadian economy, depressed energy and commodities were amongst the poorest performing sectors to drag on domestic equities," said James Rausch, Head of Client Coverage, Canada, RBC Investor & Treasury Services, as oil prices fell over 15 per cent since the beginning of the year and reserves of oil remain above average. 

"Nevertheless, Canadian pension fund managers have continued to prudently manage portfolio allocations, remaining underweight in Canadian equities compared to domestic fixed income and global equities and generating yet another positive overall return for the quarter," Rausch said. 

Although global equities moved off their strong returns of 6.2 per cent in Q1 2017, posting just 2.3 per cent for the quarter, stocks continued to respond to continued positive global economic data, such as encouraging signs of a stable recovery in Europe and healthy quarterly earnings.

Any enthusiasm was dampened, however, by disappointing growth numbers and political risk factors from the US, along with considerations that the recovery in most equities is approaching its natural ceiling; the MSCI World Index slipping from 5.8 per cent to 1.3 per cent in Q2 2017.

After their foray into negative territory in Q4 2016 (-3.4 per cent), Canadian fixed income returns consolidated their recovery from the previous quarter, again posting gains of 1.4 per cent.

This was against a general backdrop of weakness in global bond markets, as central banks increasingly consider calling time on stimulus packages and preparing the ground for possible rises in interest rates, prompting a slight bounce in bond yields in anticipation of a move in that direction by the Bank of Canada. The FTSE TMX Universe Canadian bond index also remained positive, gaining 1.1 per cent for the quarter.  

The strengthening Canadian dollar continued to put pressure on stocks and bonds over the quarter; the US dollar continued its slide against the Canadian dollar, falling further into the red at -2.62 per cent, down from -0.6 per cent in Q1 2017.





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Canadian defined benefit pension plans remained resilient in the face of weakening domestic equities, with second quarter returns of 1.4 per cent, according to Q2 2017 figures from RBC.

Tracking C$650 billion of assets under management, the RBC Investor & Treasury Services All Plan Universe is the most comprehensive overview of Canadian Defined Benefit pension plans.

Canadian equity returns slipped into negative territory with returns of -1.9 per cent in Q2 2017, compared with 2.3 per cent for the previous quarter, mirroring the TSX Composite Index which reported -1.6 per cent in Q2 2017, down from previous gains of 2.4 per cent.

"Despite positive economic indicators of a healthy Canadian economy, depressed energy and commodities were amongst the poorest performing sectors to drag on domestic equities," said James Rausch, Head of Client Coverage, Canada, RBC Investor & Treasury Services, as oil prices fell over 15 per cent since the beginning of the year and reserves of oil remain above average. 

"Nevertheless, Canadian pension fund managers have continued to prudently manage portfolio allocations, remaining underweight in Canadian equities compared to domestic fixed income and global equities and generating yet another positive overall return for the quarter," Rausch said. 

Although global equities moved off their strong returns of 6.2 per cent in Q1 2017, posting just 2.3 per cent for the quarter, stocks continued to respond to continued positive global economic data, such as encouraging signs of a stable recovery in Europe and healthy quarterly earnings.

Any enthusiasm was dampened, however, by disappointing growth numbers and political risk factors from the US, along with considerations that the recovery in most equities is approaching its natural ceiling; the MSCI World Index slipping from 5.8 per cent to 1.3 per cent in Q2 2017.

After their foray into negative territory in Q4 2016 (-3.4 per cent), Canadian fixed income returns consolidated their recovery from the previous quarter, again posting gains of 1.4 per cent.

This was against a general backdrop of weakness in global bond markets, as central banks increasingly consider calling time on stimulus packages and preparing the ground for possible rises in interest rates, prompting a slight bounce in bond yields in anticipation of a move in that direction by the Bank of Canada. The FTSE TMX Universe Canadian bond index also remained positive, gaining 1.1 per cent for the quarter.  

The strengthening Canadian dollar continued to put pressure on stocks and bonds over the quarter; the US dollar continued its slide against the Canadian dollar, falling further into the red at -2.62 per cent, down from -0.6 per cent in Q1 2017.



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