Northern Trust says pension plans ended the first half of 2023 in a position of strength
Investing in alternatives has given Canadian pension plans the hedge they need to navigate higher interest rates according to a new analysis.
The Northern Trust Canada Universe shows that pension plans ended the first half of 2023 in a position of strength with a median return of 1% for the quarter ended June 30 and 5.3% year-to-date. The strong performance shown in the report tallies with others including a recent report from RBC Investor Services.
Despite several headwinds – inflation, interest rates, the US banking crisis, US debt ceiling concerns, and others – Canada’s pension plans showed resiliency.
“In this environment, pension plans have benefited from a growing trend towards alternative investments, given the diversification and underlying hedging feature embedded in this asset class. As we wait for the inflation pendulum to swing back to more normalized levels, higher interest rates continue to provide a cushion for the funding health of Canadian Pension Plans,” said Katie Pries, president and CEO of Northern Trust Canada.
Among the highlights:
- Canadian Equities, as measured by the S&P/TSX Composite Index, returned 1.1% for the quarter. Information Technology was the top performer for the quarter, followed by the Consumer Discretionary sector, while the Materials, Real Estate and Consumer Staples sectors posted the weakest results for the period.
- U.S. Equities, as measured by the S&P 500 Index, advanced 6.3% in CAD for the quarter with seven of the 11 sectors posting positive results. Information Technology, Communication Services and Consumer Discretionary sectors led the way with double digit returns, while the Utilities and Energy sectors observed the largest decline for the period.
- International developed markets, as measured by the MSCI EAFE Index, recorded 0.9% in CAD for the quarter. The stronger performers were the Industrials, Information Technology and Consumer Discretionary sectors, while the Communication Services, Real Estate and Materials sectors were the largest decliners for the period.
- The MSCI Emerging Markets Index declined -1.2% in CAD for the quarter, with four of the 11 sectors generating positive returns. The Energy, Financials and Information Technology sectors observed the strongest performance, while the Communication Services, Consumer Discretionary and Real Estate sectors witnessed the largest declines.
