Canadian pension plans made significant gains in Q3 2012, as increased monetary support from central banks reassured global markets, says the latest survey from RBC Investor Services.
The survey finds investors’ appetites for risk have also increased.
Canadian defined benefit pensions gained 3.2% in the quarter ending September 30, 2012, which goes against a loss of 1.1% in the second quarter. The median year-to-date return for Canadian pension plans is 6.6%.
“Canadian defined benefit pension plans returned to positive territory, driven by the financials and energy and materials sectors as global markets continued their liquidity-driven climb from the summer lows,” says Scott MacDonald, head of pensions, insurance, and sovereign wealth strategy for RBC Investor Services.
He adds, “Despite deteriorating economic conditions in Europe and China, as well as lackluster economic news from the U.S., this rally was driven by major central banks pledging further monetary support and a positive performance for commodities and energy-based stocks.”
After being the worst performing asset class in Q2 2012, Canadian equities rebounded sharply in Q3. The S&P/TSX Composite increased 7% and brought year-to-date performance up to 5.4%.
All 10 sectors of the S&P/TSX Composite had positive gains in Q3, with materials and energy leading the way, boosted 13.1% and 8.5%.
The Canadian equity holdings of Canadian pensions returned 6.2% for the quarter, underperforming the S&P/TSX Composite by 0.8% as they were underweight in materials.
Returns from foreign equities were dampened by the Canadian dollar strengthening against the U.S. and European currencies. The S&P500 returned 6.4% in USD versus 2.7% in CAD, and the MSCI World Index returned 5.6% in local currencies versus 3% in CAD.
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The DEX Universe Bond Index remained in the positive, returning 1.2% over the third quarter compared to 2.3% in the second quarter. Central banks around the world continued to signal their commitment to bolstering their respective economies, and helped boost bonds.
“Within the DEX Universe index, the corporate segment outpaced its government counterparts, indicating a flight to risk as managers went after additional yield,” adds MacDonald.
The median Domestic Bonds return for Canadian pensions of 1.6% outperformed the DEX Universe by 0.4%.