Canadian Pension Funds Lose 0.7% in Q1

The 334 pooled funds turn negative after record gains in 2017.

Canada’s diversified pooled fund managers posted a median loss of 0.7% before management fees during the first quarter of 2018, according to consulting firm Morneau Shepell. Despite the negative returns, it was still equal to the performance of its benchmark portfolio.

“After hitting record levels in 2017, the major stock markets posted negative returns in local currency, mainly due to uncertainty and concerns about monetary policy and global trade,” Jean Bergeron, a partner at Morneau Shepell, said in a release.

Bergeron said emerging market equities were the top performer during the quarter, as the MSCI Emerging Markets Index returned 4.4% in Canadian dollars.  However, the Canadian stock market had a poor first quarter, returning negative 4.5%, while US equities also underperformed, but posted a return of 2% in Canadian dollars thanks to the exchange rate, according to Bergeron. Meanwhile, bond returns edged higher in the first quarter, rising approximately 0.1%.

Morneau Shepell also said the decrease in liabilities was greater than the negative asset returns, which led to improved pension fund financial positions on a solvency basis in the first quarter.

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“The solvency ratio for an average pension plan improved by about 0.3% to 1.0% during the year,” said Bergeron.

For the quarter, the funds’ Canadian equities lost 3.7%, but outperformed the 4.5% loss of the S&P/TSX Index, while bond investments had a median return of 0.2%, which was 0.1% higher than the benchmark index. High-yield bonds posted a 1.5% return, while real return bonds provided a 1.4% return.

The funds also reported returns of 2.3% for US equities, which was above the 2% for the S&P 500 Index; 1.6% for global equities, matching the MSCI World Index; and 4.3% for emerging markets equities, versus 4.4% for the MSCI Emerging Markets Index.

Morneau Shepell’s Performance Universe, which is used to track pension fund performance, has a market value of more than C$257 billion ($200.2 billion), and covers about 334 pooled funds managed by nearly 51 investment management firms. The results of the study are based on the returns provided by portfolio managers, including independent investment management firms, insurance companies, trust companies, and other financial institutions. The returns are calculated before deduction of management fees.

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