Canadian pensions buoyed by positive performance in equity markets

As economies reopened, Canadian DB pensions in the RBC Investor & Treasury Services All Plan Universe weathered the pandemic-induced slowdown and continued the forward momentum from Q2, gaining a median 3.0 per cent in Q3. 

The median year-to-date return for Canadian DB plans stood at 5.2 per cent for the period ending 30 September, 2020.

“Canadian defined benefit pension plans remained in positive territory through the third quarter as global markets continued their liquidity-driven climb from the first quarter,” says David Linds, Managing Director and Head of Asset Servicing, Canada at RBC Investor & Treasury Services. “As we head now toward year-end, we are facing potential headwinds such as the resurgence of COVID-19 and uncertainty over the upcoming U.S. presidential election and government support programs. We can expect an increase in market volatility – as these factors have the potential to discourage global markets and lower investors’ appetites for taking on risk.”

After a lofty performance in the second quarter, Canadian equities continued to advance in Q3, with the TSX Composite increasing 4.7 per cent. Nine of the sectors in the benchmark generated positive returns, led by industrials (13.6 per cent) – with CN Rail and CP Rail as the most significant contributors – followed by utilities (11.0 per cent) and materials (9.1 per cent). In negative territory were health care and energy. On a year-to-date basis, the TSX Composite index was down -3.1 per cent, with the IT sector (68 per cent) handily outperforming the other economic sectors. DB pension plans’ Canadian equities holdings returned a median of 5.2 per cent for the quarter, modestly outperforming the TSX Composite by 0.5 per cent.

DB pension plans’ foreign equities holdings returned a median 5.8 per cent, with US stocks outperforming their non-North American counterparts. The positive results in the US market were concentrated on select large cap growth stocks. The MSCI World Index returned 5.9 per cent, edging out Canadian DB Pension Foreign Equity holdings by a small margin.

The Canadian fixed income asset class return in the peer universe was relatively flat for the quarter, returning 0.7 per cent. The FTSE Canada Universe bond index meanwhile returned 0.4 per cent over the third quarter – compared to 5.9 per cent in the second quarter – as central banks around the world continued to signal their commitment to bolstering their respective economies. Year-to-date, Canadian fixed income was the best performing asset class in the peer universe, with a median return of 10.3 per cent.