Interest rate concerns and the strengthening Canadian dollar largely erased healthy stock market gains in the second quarter, according to a survey just released by RBC Dexia Investor Services.
Within the CAD 340 billion RBC Dexia universe, Canadian pensions earned 0.9 percent in the quarter ended June 30, 2007, bringing year-to-date totals to 2.9 percent. Domestic stocks, the top performing asset class for Canadian pensions, returned 6.3 percent in the quarter, supported by firm commodity prices and market speculation about takeovers.
“Year-to-date, Canadian pension plans have beaten the S&P TSX Composite benchmark index by almost a full percentage point – that’s a 10.0 per cent gain, on the strength of superior security selection in the materials sector,” says Don McDougall, Director Advisory Services, RBC Dexia Investor Services.
However, the loonie’s dramatic rise against most major currencies prevented most Canadian pension plans from benefiting from buoyant equity markets outside the country. The MSCI World index’s healthy 6.0 per cent rise in local currency terms translated into a loss of 1.8 per cent for the quarter, once Canadian exchange rates were taken into account.
“Currency fluctuations have assumed crucial significance for pension plan sponsors,” says McDougall. “Foreign stocks now account for about half of the typical pension plan’s strategic equity allocation, but most plans do not hedge their foreign currency exposure.”