Canadian DB pension plans posted a -0.2 per cent median return in Q1 2021 amid an improved economic outlook, according to the RBC Investor & Treasury Services (RBC I&TS) All Plan Universe.
RBC I&TS reveals that the loss came on the heels of a Q4 2020 return of 5.4 per cent and an annual 2020 return of 9.2 per cent.
As projections pointed to higher expected growth, investors readied themselves for mounting inflationary pressure, causing bond yields to move up sharply and fixed income securities to lose ground.
Meanwhile, fixed income assets held by pension plans posted a median return of -7.1 per cent in Q1 2021, compared to 1.1 per cent in Q4 2020.
The FTSE TMX Universe Canadian Bond Index returned -5.0 per cent, with interest-rate-sensitive longer-dated bonds (FTSE TMX Long Term index -10.7 per cent) underperforming their shorter-dated bond counterparts (FTSE Short Term index -0.6 per cent).
Elsewhere, RBC I&TS notes that global equity markets continued to rally and hit new highs during this time period.
For the second consecutive quarter, value stocks – pro-cyclical in nature – outperform growth stocks (MSCI World Value 8.1 per versus MSCI World Growth -1.1 per cent).
RBC I&TS also highlights that sectors that were hit hard by the pandemic continued to recover on account of reopening optimism.
Canadian DB plans’ foreign equities returned a modest 3.7 per cent in Q1 2021, as a strengthening loonie trimmed some of the local currency returns for unhedged plans. In comparison, the MSCI World index returned 3.5 per cent over the quarter.
Canadian equities benefitted from their significant exposure to cyclical sectors and delivered solid gains in Q1, posting 8.6 per cent. The TSX Composite index posted an 8.1 per cent gain, led by the energy (+20.3 per cent) and financials (+13.9 per cent) sectors.
“We have seen the markets price in a very optimistic economic scenario based on forecasts of strong GDP growth, the gradual ramping up of the vaccine supply and fiscal and monetary stimulus,” comments David Linds, managing director and head of asset servicing, Canada, RBC I&TS.
“However, plan sponsors should continue to be on guard for risk factors such as the emergence of potent COVID-19 variants and supply constraints in a highly competitive global vaccine market,” adds Linds.
