Canadian DB pension plans post -2.6% in Q3 as yields cut both ways
Equities hold up, but fixed income takes the hit
Within their equity allocations, client plans tracked by RBC Investor Services returned 1.2 per cent in global equities over the quarter, lagging the MSCI World Index (CAD) return of 1.9 per cent. U.S. equities outperformed, with the S&P 500 Index (CAD) returning 2.4 per cent.
Energy was the S&P 500’s standout sector at 17.3 per cent, buoyed by elevated oil prices. Information technology – which constitutes approximately 39.7 per cent of the S&P 500 benchmark – returned 7.3 per cent. European equities underperformed, with the MSCI Europe Index (CAD) declining 1.6 per cent.
On the domestic side, client plans returned 1.6 per cent in Canadian equities, broadly tracking the TSX Composite Index. Financials, which account for approximately 34.4 per cent of the index, declined 3.0 per cent, while information technology led all sectors with a gain of 17.9 per cent. Materials advanced 12.9 per cent, supported by gold and other precious metals. Energy rose a modest 3.3 per cent in the quarter but ranked as the top sector year-to-date at 27.7 per cent.
The fixed income picture was considerably more challenging. Client plans returned negative 5.1 per cent against the FTSE Canada Universe Bond Index return of negative 3.0 per cent. Long-term bonds bore the brunt of the selling, with the FTSE Canada Long Overall Index declining 6.3 per cent.
The Government of Canada 10-year bond yield rose 61 basis points over the quarter. Only 91-day Treasury bills, at 0.6 per cent, and mortgage bonds, at 1.5 per cent, recorded positive fixed income returns.
