The rising Canadian dollar was bad news for balanced pension funds in Canada in the third quarter. Currency losses on foreign investments largely erased market gains at home, according to a survey just released by BENCHMARK, the investment analytics arm of RBC Global Services.
For a second consecutive quarter, pension funds barely stayed in the black. The three months ending September 2004 returned a meagre 0.3 per cent, nudging year-to-date totals up to 4.7 per cent.
“Most Canadian pension plans do not hedge foreign exchange exposure and were walloped by our strengthening dollar this quarter,” explains Don McDougall, director, BENCHMARK, RBC Global Services. “Foreign equities shrank 6.8 per cent in Canadian dollar terms – and currency translation was responsible for more than three-quarters of this decline.”
Domestic assets offset the global losses. Despite climbing interest rates, fixed-income portfolios rebounded after a weak second quarter, gaining 2.8 per cent. Higher commodity prices translated into healthy gains for energy and materials stocks, contributing to a 1.9 per cent rise in Canadian equities over the period.
“Active managers were pretty much in line with the markets this quarter, but overall this year have outperformed in all major sectors, adding considerable value to Canadian pension plans,” notes McDougall.