Canadian Pension Funds Return 1.5% in Q3 | Chief Investment Officer

Canadian diversified pooled funds posted a median return of 1.5% before management fees during the third quarter, which was 0.3% below the benchmark portfolio, according to consulting firm Morneau Shepell. Since the beginning of the year, the funds have returned 12.8%.

“Although returns have been good since the year started, the decrease in interest rates has caused the solvency liability of many pension funds to increase at a faster pace than their assets,” Jean Bergeron, head of Morneau Shepell’s asset and risk management consulting team, said in a statement. “This means that on a solvency basis, pension fund financial positions have decreased by about 2% to 5% since the beginning of the year.”

The Morneau Shepell Performance Universe covers some 319 pooled funds managed by nearly 51 investment management firms. The pooled funds included in the universe have a market value of more than C$548 billion ($416.2 billion).

Despite higher volatility, the markets registered positive returns during the third quarter as the FTSE Canada Universe Bond Index returned 1.2%, the Canadian Equity S&P/TSX Composite Index returned 2.5%, and the MSCI World (developed markets) Index returned 1.9%. Emerging markets were the only assets with negative returns, with the MSCI Emerging Markets index losing 2.8%.

During the quarter, short-term, mid-term and long-term bond indices saw returns of 0.3%, 0.9%, and 2.5% respectively, while the high-yield bond index posted a 2% return, and the real return bond index had a 1.3% return.

The median return for Canadian equity managers during the quarter was 2.4%, which was just under the 2.5% returns for the S&P/TSX Index. The S&P/TSX Small Cap Index decreased 1.2%, while the S&P/TSX Completion Index representing mid-cap stocks increased 1.7%, while the large-cap S&P/TSX 60 Index grew 2.7%.

Meanwhile, foreign equity managers’ median returns for US equities were

2.5%, compared with a 2.9% return for the S&P 500 Index; the median returns for international equities was 0.1% compared with 0.2% for the MSCI EAFE Index; and the returns for global equities was 0.9% compared with 1.9% for the MSCI World Index. And emerging markets equities fell 2.1% compared with a 2.8% decline for the MSCI Emerging Markets Index.

The results of Morneau Shepell’s study are based on the returns provided by portfolio managers, such as independent investment management firms, insurance companies, trust companies, and financial institutions. The returns are calculated before management fees are deducted.