Pension assets remained unchanged during the second quarter of 2013, as a spike in interest rates in June negated advances in April and May.
According to the $460 billion RBC Investor & Treasury Services All Plan universe, which encompasses Canadian pension plans, defined benefit (DB) pensions returned 0 percent for the quarter ending 30 June 2013, keeping year-to-date results at 4.5 percent.
“Market volatility returned in June following the Fed’s statements regarding its commitment to quantitative easing,” said Scott MacDonald, head of pension segment development for RBC Investor & Treasury Services.
“While all DB plans benefit from rising long term bond yields as pension liabilities are reduced, those with risk mitigating liability-driven investment strategies were the hardest hit during the quarter.”
Bonds had their largest three month decline since 1994, losing 2.5 percent in the quarter and 1.7 percent over six months.
“Weakness was across the market, but longer duration bonds were the most affected, as the DEX Long Term Index declined 4.6 per cent in the quarter and DEX Real Return Bonds are down 11 percent year-to-date,” said MacDonald.
Canadian equities also lost ground within pension plans, declining 1.2 percent compared to the S&P/TSX Composite, which was down 4.1 percent in the quarter.
“The decline in the materials sector and mining stocks in particular continued to be the key factor affecting performance this quarter. Looking at the year-to-date figures, most pensions stayed in positive territory despite the market’s loss by remaining underexposed to the sector and have subsequently outperformed the index by 4.2 percent,” said MacDonald.
Foreign stocks provided the needed support this quarter, gaining 4.7 percent, mostly due to continued positive performance in the US equities market. This compares to the MSCI World Index which advanced 4.5 percent in the quarter.
“Unhedged pension plans benefitted from the Canadian dollar’s weakness against most major currencies, with FX returns accounting for over half of the gains,” said MacDonald.
“Foreign equities continue to lead year-to-date—up 15.4 percent in Canadian dollar terms.”
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