Canadian pension funds earned a healthy 4.0 per cent in the quarter ending March 2006, marking the 12th successive quarter of positive investment returns, according to a survey released by RBC Dexia Investor Services which maintains the industry’s most comprehensive universe of Canadian pension plan and money managers.
“Since the low-point in March 2003, stock markets across the world have been on a tear,” says Don McDougall, Director Advisory Services, RBC Dexia Investor Services. “The average Canadian pension plan has realized a robust 15.8 per cent annualized return over three years.” In the latest 12 months, performance averaged 14.9 per cent.
Surging commodity prices have propelled domestic equities to record highs. Canadian pension plans have generally reined in their exposure to resources – and consequently under-performed the S&P TSX composite index by 0.6 per cent in the most recent quarter (1.1 per cent for the year).
“Nevertheless, it’s still an excellent result,” observes McDougall. “Most plan sponsors would gladly accept the median one-year return of 27.0 per cent.”
Global equity markets have also roared, pushing the MSCI World index up 6.7 per cent for the quarter and 13.9 percent for the year. Moreover, under-exposure to the U.S. market helped Canadian pension plans outpace this benchmark by 0.8 per cent for the quarter (1.3 per cent for the year).
According to the RBC Dexia Investor Services survey, the median Canadian pension plan has increased foreign equity allocations by 2 per cent over the last quarter. “The repeal of the Foreign Property Rule last June has paved the way for more global diversification. That’s been good for pensions, although the strong loonie has tempered foreign returns for many unhedged Canadian plans,” explains McDougall.
Canadian fixed income did not fare as well. Speculation about further interest rate hikes triggered a modest sell-off, resulting in a 0.4 per cent loss on the quarter, in line with the Scotia Capital Universe Bond Index. Over the year, however, pension plans have averaged a respectable 5.2 per cent return on Canadian bonds.