Canadian Pensions, Pooled Funds End 2020 on High Note

Strong equity markets helped boost Canadian pension plans and diversified pooled funds during the fourth quarter of 2020, as they returned 5% and 5.7%, respectively, for the period, and 10% and 9.3%, respectively, for the year.

“The global pandemic undoubtedly was the focal point over the last year, but 2020 also symbolized a period of leadership, adaptation, and resiliency,” Katie Pries, president and CEO of Northern Trust Canada, which tracks the performance of Canadian institutional investment plans, said in a release. “Canadian pension plan sponsors faced the difficult task of navigating through an extraordinary and unpredictable period in history, while safeguarding plan assets for future retirement. This test of resiliency was met with solid performance.”

Canadian equities, based on the S&P/TSX Composite Index, surged 9% for the quarter and 5.6% for the year, with the health care and consumer discretionary sectors leading the way for the quarter and the information technology (IT) sector coming out as the top performer for the year.

US equities also earned robust gains as the S&P 500 Index rose 7% for the quarter and 16.3% for the year in Canadian dollars, with all sectors closing out the quarter in positive territory, led by the IT sector. Additionally, the Nasdaq registered its best year in US dollars since 2009, while the S&P 500 and Dow Jones ended last year at record highs.

International developed markets, as tracked by the MSCI EAFE Index, generated 10.7% in returns for the quarter, and 6.4% for the year in Canadian dollars as all sectors ended the quarter in positive territory except for the health care sector, which saw a modest decline. The energy sector was the top performer for the quarter, while the IT sector was the top performing sector for the year.

And emerging markets, based on the MSCI Emerging Markets Index, climbed 14.2% during the quarter and 16.6% for the year in Canadian dollars. All sectors produced positive gains for the quarter, with annual returns led by the health care and IT sectors.

Northern Trust also noted that the Bank of Canada maintained the current pace of its quantitative easing program and left its overnight interest rate unchanged at 0.25% as the FTSE Canada Universe Bond Index returned 0.6% for the quarter and 8.7% for the year.

Meanwhile, Morneau Shepell reported that Canadian diversified pooled fund managers’ median return of 5.7% before management fees for the quarter was 0.3% higher than that of the benchmark portfolio, which has an allocation of 55% equities and 45% fixed income. The firm also said the 9.3% annual return for the fund managers was 1.3% below the benchmark portfolio’s return for the year.

During the fourth quarter of 2020, the pooled fund managers saw a median return of 1% on bonds, which was 0.4% higher than the benchmark index. Short-term, mid-term, and long-term bond indices had returns of 0.5%, 0.6%, and 0.8%, respectively, during the fourth quarter. The high-yield bond index posted a return of 4.1%, while the real return bond index returned 1.8%.

For the year, short-term, mid-term, and long-term bond indices posted returns of 5.3%, 10.1%, and 11.9%, respectively. The high-yield bond index posted a return of 6.7%, while the real return bond index rose 13% in 2020.

“The good returns obtained in the fourth quarter enabled pension funds to improve their financial position,” Jean Bergeron, partner for the Morneau Shepell Asset & Risk Management consulting team, said in a statement. “We estimate that the solvency ratio of an average pension fund has increased by around 2.3% to 5.5% in 2020.”