Equity investments gave funds a boost, overpowering headwinds in fixed income assets
According to a recent report by RBC Investor & Treasury Services, the end-of-2016 annual returns for Canadian defined benefit pension plans reached 6.8%, higher than their 2015 showing of 5.4%. The findings were based on the comprehensive $650-billion RBC Investor & Treasury Services All Plan Universe.
“Against a challenging economic and market backdrop at the outset of 2016, Canadian pension plans generated an impressive overall performance in 2016 with three consecutive quarters in the black,” said James Rausch, head of client coverage in Canada for RBC Investor & Treasury Services. “Maintaining a diversified portfolio across sectors and asset classes, and keeping a close eye on global developments were important considerations over a year which came with remarkable change.”
Canadian equities provided a considerable lift. A 5.7% return in Q4 2016 allowed the asset class to end the year with a 21.9% annual return, edging out the TSX Composite Index’s record of 4.5% for Q4 2016 and 21.1% for the year. Strong results from Canada’s three major sectors – energy, materials, and financial services – contributed significantly.
Global equities were weighed down by volatile political and economic challenges for most of 2016. The annual return for the asset class was 4.4%, a considerable decline from 2015’s 18.9%. The return for Q4 2016 was at 3%, slightly outdone by the MSCI World Index, which managed a 3.9% return in that same period.
Fixed-income assets took a beating in the fourth quarter last year, dropping in the red to -3.4% in Q4 2016. Nevertheless, they managed to end 2016 in the black overall with an annual return of 2.4%. Those results tracked closely to the FTSE TMX Universe Canadian bond index, which managed Q4 2016 and annual overall returns of -3.4% and 1.7%, respectively. The last-quarter decline was thought to have been caused at least in part by a rate hike by the Fed and speculations of dialed-down quantitative easing from the European Central Bank.
The report cautioned that continuing uncertainty as well as potential interest rate hikes may impact 2017 returns. Economic policy revelations from the new US administration, as well as post-referendum developments in the UK and economic uncertainty in China, will also have to be monitored.
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“Against a challenging economic and market backdrop at the outset of 2016, Canadian pension plans generated an impressive overall performance in 2016 with three consecutive quarters in the black,” said James Rausch, head of client coverage in Canada for RBC Investor & Treasury Services. “Maintaining a diversified portfolio across sectors and asset classes, and keeping a close eye on global developments were important considerations over a year which came with remarkable change.”
Canadian equities provided a considerable lift. A 5.7% return in Q4 2016 allowed the asset class to end the year with a 21.9% annual return, edging out the TSX Composite Index’s record of 4.5% for Q4 2016 and 21.1% for the year. Strong results from Canada’s three major sectors – energy, materials, and financial services – contributed significantly.
Global equities were weighed down by volatile political and economic challenges for most of 2016. The annual return for the asset class was 4.4%, a considerable decline from 2015’s 18.9%. The return for Q4 2016 was at 3%, slightly outdone by the MSCI World Index, which managed a 3.9% return in that same period.
Fixed-income assets took a beating in the fourth quarter last year, dropping in the red to -3.4% in Q4 2016. Nevertheless, they managed to end 2016 in the black overall with an annual return of 2.4%. Those results tracked closely to the FTSE TMX Universe Canadian bond index, which managed Q4 2016 and annual overall returns of -3.4% and 1.7%, respectively. The last-quarter decline was thought to have been caused at least in part by a rate hike by the Fed and speculations of dialed-down quantitative easing from the European Central Bank.
The report cautioned that continuing uncertainty as well as potential interest rate hikes may impact 2017 returns. Economic policy revelations from the new US administration, as well as post-referendum developments in the UK and economic uncertainty in China, will also have to be monitored.
Related stories:
Pension fund thinking global with life insurance investments
Improved funding conditions boost Canadian pension plans in 2017
