Canadian Fund Managers Post 2.7% Loss in 2018

Solvency ratio for Canadian pension plans drops 2% for year.

Canadian diversified pooled fund managers posted a median loss of 5.6% before management fees in the last quarter 2018, which led to a loss of 2.7% for the year, 0.4% under the benchmark portfolio, according to human resources services company Morneau Shepell.

“Pension fund solvency liability was up slightly, remaining relatively stable compared to the beginning of 2018,” Jean Bergeron, head of Morneau Shepell’s asset and risk management consulting team, said in a release. “However, given the negative returns, pension fund financial positions on a solvency basis have deteriorated.”

Bergeron said the solvency ratio for an average Canadian pension plan had fallen by about 2.0% to 3.5% since the beginning of the year.

In Q4, Canadian equity managers had an average loss of 9.8%, which was 0.3% higher than the 10.1% posted by the S&P/TSX Index. For the year, the S&P/TSX Small Cap Index lost 18.2%, while the S&P/TSX Completion Index representing mid-cap stocks fell 12.9%, and the large-cap S&P/TSX 60 Index was down 7.6%.

The bond market posted a return of 1.4%, while the Canadian equity S&P/TSX composite index posted a loss of 8.9%, and the US equity S&P 500 index dropped 4.4% in US dollars.

“This lackluster performance was offset by the depreciation of the Canadian dollar, which upped the return in Canadian dollars to 4.0%,” said Bergeron.

Canadian managers saw a median return of 1.6% on bonds in Q4, which underperformed the benchmark index by 0.2%. However, since the beginning of 2018, managers had a median return of 1.5%, which was 0.1% above the benchmark index. The long-term bond index posted a return of 0.3% for the year, while mid-term and short-term bond indices returned 1.9%. The high-yield bond index posted a 2.1% return, while real return bond index provided a 0.0% return.

The results from Morneau Shepell are based on the returns provided by portfolio managers, including independent investment management firms, insurance companies, trust companies, and financial institutions. The returns are calculated before deduction of management fees.

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