Canadian Funds Return 8.3% in Q1

Despite strong gains, funds underperformed the benchmark portfolio.

Canadian diversified pooled fund managers posted a median return of 8.3% before management fees during the first quarter of 2019, according to human resources services and technology company Morneau Shepell. The returns were 0.4% below the benchmark portfolio that is comprised of 55% equities and 45% fixed income.

The gains were fueled by a 13.3% return by the Canadian Equity S&P/TSX Composite index, and a 13.6% return in US dollars by the US Equity S&P 500 index, which returned 11.3% in Canadian dollars due to the appreciation of the Canadian dollar versus the US dollar. The MSCI World (Developed Markets) index returned 10.0%, and the MSCI Emerging Markets index posted a return of 7.6%, while the FTSE Canada Universe Bond index gained 3.9%.

“Pension fund solvency liability was up during the quarter due to a decrease in interest rates,” Jean Bergeron, a vice president responsible for the Morneau Shepell Asset & Risk Management consulting team, said in a release. “However, given the high returns for the period, pension fund financial positions on a solvency basis improved.”

Bergeron said the solvency ratio for a pension plan with an average maturity has improved by approximately 1.5% to 3.0% since the beginning of the year.

Morneau Shepell’s findings are based on the returns provided by portfolio managers at independent investment management firms, insurance companies, trust companies, and financial institutions. The returns are calculated before deduction of management fees. The funds covered have a combined market value of more than $525 billion, and include 302 pooled funds managed by nearly 51 investment management firms.

The diversified pooled fund managers reported returns of 3.9% on bonds, which was equal to the benchmark index.  Since the beginning of the year, short-term, mid-term and long-term bond indices posted returns of 1.7%, 3.8%, and 6.9% respectively. High-yield bond index posted 4.0%, while real return bond index provided a 5.1% return.

The S&P/TSX Small Cap Index has risen 10.7% so far this year, while the S&P/TSX Completion Index representing mid-cap stocks increased 15.8%, and the large-cap S&P/TSX 60 Index gained 12.5%.

Foreign equity managers saw median returns of 11.1% for US equities compared with 11.3% for the S&P 500 Index; 8.1% for international equities versus 7.6% for the MSCI EAFE Index; 9.4% for global equities, compared with 10.0% for the MSCI World Index; and 8.2% for emerging markets equities against 7.6% for the MSCI Emerging Markets Index.

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