Canadian pension plans suffered reverses in the final two quarters of 2007, as the spreading global credit crunch hurt stock market performance, according to a survey just released by RBC Dexia Investor Services, which maintains the industry’s most comprehensive universe of Canadian pension plans and money managers.
Within the CAD 340 billion RBC Dexia universe, Canadian pension funds lost 0.5% in the quarter ended 31 December, returning a paltry 1.5% for the year.
“2007 was tumultuous, as the soaring loonie and spiking energy prices reached record highs, against a backdrop of tightening global credit and recessionary pressures in the US. However, after four consecutive years of double-digit annual returns, some weakening was in the cards,” says Don McDougall, director Advisory Services, RBC Dexia.
Canadian equities were the dominant asset class, producing a respectable 8.5% over the year, but lagging the S&P TSX Composite Index by 1.3%. “It was tough to beat the market in 2007, with gains concentrated in just a few stocks,” says McDougall.
The top three contributors generated more than half the TSX return in 2007: Research in Motion, Potash Corporation of Saskatchewan and Alcan.
“Again in 2007, currency was a critical factor for Canadian-based investors,” says McDougall. Year-over-year, Canada’s dollar appreciated by more than 12% against a basket of world currencies, including 16% against the US Dollar, 15% against the British Pound and 9% against the Japanese Yen. “The loonie’s remarkable ascent against major currencies prevented most pension plans from benefiting from rising foreign stock markets,” adds McDougall.
The MSCI World Index’s 4.7% gain in local currency terms translated into a loss of 7.5% for the year, once exchange rates were taken into account. Canadian bonds earned only 3.4% for the year, despite a solid 2.6% rise in the final quarter their worst annual performance since 1999 and 0.3% behind the DEX Universe Bond Index.