Market sentiment turned decidedly negative in September, counteracting the majority of advances made in July and August, according to the latest analysis from the RBC Investor & Treasury Services (RBC I&TS) All Plan Universe.
Defined benefit (DB) pensions returned 0.6 per cent for the quarter ending September 30, 2021, bringing the year-to-date results to 4.5 per cent.
RBC I&TS says the Canadian equities asset class returned a modest 1.5 per cent over the quarter but was up an impressive 18.3 per cent on a year-to-date basis.
In comparison, the S&P/TSX Composite Index was up 0.2 per cent in the quarter; the top performing sectors in the benchmark were Energy, Consumer Staples and Industrials, while the laggards were Materials (due to weakness in gold stocks) and Consumer Discretionary, according to RBC I&TS.
Meanwhile, foreign equities held by Canadian DB plans kept pace with Canadian equities and gained 1.4 per cent, but trailed the MSCI World Index, which advanced 2.3 per cent in the quarter.
According to RBC I&TS All Plan Universe, unhedged Canadian pension plans benefitted from weakness in the Canadian dollar, which depreciated against most major trading currencies over the quarter. For the second quarter in a row, growth stocks (MSCI World Growth 3.1 per cent) outperformed value stocks (MSCI World Value 1.5 per cent).
From a regional perspective, US stocks continued to outperform their non-US developed market counterparts. Emerging market stocks ended up in negative territory (MSCI Emerging Markets -6.0 per cent), primarily due to steep losses in the Chinese market.
Fixed income securities experienced a slight decline, losing -0.8 per cent in the quarter, and were down -5.7 per cent over nine months.
Government bond yields rose in September, while credit spreads remained generally unchanged. As a result, RBC I&TS says corporate bonds outperformed government bonds and longer duration bonds underperformed their shorter duration counterparts.
Niki Zaphiratos, managing director and head, asset owners, client coverage, Canada, for RBC I&TS, comments: “Market volatility returned in September on account of global concerns over the impact of labour shortages, strained supply chains and rising consumer prices – all due to the COVID-19 Delta variant.”
Zaphiratos explains: “Investors are watchful in anticipation of a debt limit showdown in December and the ongoing struggles to reach an infrastructure deal and funding agreement in the US.”
“Central banks are already moving away from some of the ultra-loose monetary policies as inflation pressures persist. In response, plan managers have been increasingly investing in a greater variety of asset classes such as private equity, real estate and infrastructure that can hedge against inflation,” adds Zaphiratos.
