Canadian pension plans lost some of their first quarter gains in the second quarter of this year, as concerns over the European debt crisis and a weakening global economy pushed Canadian equities lower, according to a survey by RBC Investor Services.
Within the $410 billion RBC Investor Services All Plan universe, Canadian DB pensions fell 1.1%, against gains of 4.5% in the first quarter.
Canadian equities were the worst performing asset class in the quarter, with the S&P/TSX Composite falling by 5.7% and wiping out its first quarter gains of 4.4%.
Pensions’ foreign equity investments underperformed the MSCI World (CAD) by 0.4%, reversing a trend of positive returns for the past two quarters, while the MSCI World index fell 3.2% in Canadian dollars compared to 4.3% in local currency.
“After the sustained rally in the previous two quarters, pension plans felt the heat of the ongoing saga in Europe and the resulting domino effect on Canadian and foreign equities,” said Scott MacDonald, head of pensions, insurance, and sovereign wealth strategy with RBC Investor Services.
“The weakening of the Canadian dollar lessened the impact of falling foreign equities on Canadian DB plans, but the continuing downward pressure on stock prices is eroding the gains of plans seeking higher returns from equities.”
Within the S&P/TSX Composite, seven of 10 sectors declined in the second quarter. Information technology fell the most, down 17.8%, while two of the largest sectors, energy and materials, fell by 7.3% and 10.8%, respectively, due to concerns about global demand.
Overall, pensions’ Canadian equity holdings outperformed the S&P/TSX Composite by 0.5%, but domestic bonds were the best performing asset class for the quarter, with the median pension return of 2.4% marginally outperforming the DEX universe by 0.1%.
Long-term bonds were up 4%, making them the best performing sector in the DEX Universe for the second quarter.
This article was originally published on benefitscanada.com