Canadian pensions back in the black

By Staff | February 18, 2016 | Last updated on February 18, 2016
3 min read

Volatile market conditions and global economic uncertainty persisted in Q4 2015; however, Canadian pension plans finished the year in positive territory with an annual return rate of 5.4%, according to the $650 billion RBC Investor & Treasury Services All Plan Universe.

The report notes Canadian defined-benefit pension plan assets rebounded from back-to-back losses in the second and third quarters of 2015, posting a gain of 3.1% in Q4 2015, compared with -2.0% in Q3 2015 and -1.6% in Q2 2015.

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“Canadian pension plans clearly benefited from global diversification portfolio strategies. The positive 2015 return rate can largely be attributed to a lift from global equities which offset much of the downward pressure from weaker domestic sectors, particularly commodities, resources and energy, over the course of the year,” says David Heisz, CEO, RBC Investor Services Trust, RBC Investor & Treasury Services.

Global equities shine

Pension returns from global equities ended Q4 2015 and the full year up 8.9% and 18.9%, respectively, in line with the MSCI World Index, mitigating the drag from their Canadian counterparts which registered annual returns of -7.4%.

According to Craig Wright, senior vice-president and chief economist, RBC, “Returns from global equities were boosted due to the ongoing weakness in the Canadian dollar, which had a tumultuous year on the back of tumbling crude oil prices. Ranked as the worst-performing G10 currency, the Canadian dollar finished the fourth quarter of 2015 with a loss of 3.6% against the U.S. greenback.”

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Falling crude prices continued to reverberate in the wider Canadian economy, adding to the woes of the commodities and materials sectors, and placing pressure on Canadian equities. “A large part of the economy’s subpar performance in 2015 was due to an estimated 30% drop in spending by energy companies and support services that shaved more than a percentage point from the year’s annual growth rate,” added Wright.

Returns from Canadian equities saw some light at the end of the tunnel in Q4 after posting a loss of -0.5%, compared to -7.8% in the previous quarter. Canadian pension plans again proved resilient and remained historically underweighted in the sector, outperforming the S&P/TSX Composite benchmark performance of -1.4% for the last quarter and -8.3% for the year.

Fixed income stays steady

Returns from Canadian fixed income assets also helped underpin the overall positive performance of defined benefit plans, registering a 1.1% return in Q4 and ending the year at 3.6%, compared to the FTSE TMX Universe Canadian Bond Index with its 3.5% annual return.

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“Fixed income assets were also impacted by ongoing economic volatility in 2015,” says Heisz. “Highly variable inflation as well as gloomy economic and central bank outlooks meant bond yields experienced a wide range of movement. That said, short-term yields recovered enough to allow pensions to register positive returns for the last quarter, breaking a negative streak in the two preceding.”

Looking ahead to 2016

China’s slowing economy, geopolitical issues and oil prices are likely to continue to have an impact on the performance of Canadian pension funds this year. Markets will remain unsettled, while China continues to experience slow growth amid efforts to rebalance itself from imports and exports to the consumer.

However, as U.S. economic growth strengthens, and in light of the Canadian dollar’s weakness, the Canadian manufacturing sector stands to benefit from increasing demand for Canadian exports from south of the border. staff


The staff of have been covering news for financial advisors since 1998.