Plummeting equity markets hurt pension plans in the third quarter as the ongoing financial crisis gained global intensity, 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 plans suffered the largest quarterly decline in a decade, tumbling 8.6% in the three months ending September 30.
“Year-to-date, Canadian pensions are down 10.1%,” says Don McDougall, director of Advisory Services for RBC Dexia. “It hasn’t been pretty – and judging by the performance in October so far, the situation is not getting any better.”
Canadian equity was the hardest-hit asset class, plunging 18.2% as commodity prices dragged the resource-heavy S&P TSX Composite Index to its lowest quarterly result since September of 1998. Energy stocks lost 28.3%, while materials dropped 33.6% over the period.
“Fortunately, most Canadian funds had already trimmed their exposure to resources,” says McDougall. “By locking in gains earlier in the year, pensions deftly outperformed the index by 1.7%.”
Global equities fell 11.2%, matching the MSCI World Index in the latest quarter.
“Ironically, US stocks and a stronger greenback helped cushion the blow,” says McDougall. “In Canadian dollar terms, the MSCI EAFE index slumped by 16.8% over the quarter, an 18-year record drop. In domestic bonds, Canadian pensions slipped 1.5% in the quarter – far below the 0.4% dip in the DEX Universe broad market benchmark. McDougall observed, “Spreads varied considerably: longer maturity bonds dropped 3.1%, while real return bonds lost 9.0% – their worst quarter in 14 years.”
D.C.