RBC Investor Services says diversification, proactive risk management are vital
Investors in defined benefit pensions with RBC Investor Services were given support from megacap tech stocks in the second quarter, amid challenging overall market conditions.
The firm said that its DB pension plans ended the quarter near flat, with a positive median return of 1.1% for the quarter and a 4.4% return for the first half of 2024. This was led by global equities which posted a 3.3% return, slightly below the 3.8% seen in the MSCI World Index.
Information technology was the clear leader which returned 12.6% while communications offered a strong 9.3%. Growth-style and US stocks outperformed with the S&P 500 returning 5.7%, again it was IT that fuelled its performance.
Canadian stocks, with a broader base, underperformed with RBCIS DB plans returning a negative -0.6%, in line with the S&P/TSX Composite’s negative -0.5% in the quarter. Financials and industrials weakened the impact of a stronger materials sector.
Fixed income fared better with a positive 0.8% return in the quarter, in line with the 0.9% return of the FTSE Canada Universe Bond Index. Bonds benefitted from the Bank of Canada’s June rate cut to reverse a negative first quarter, led by short-term FTSE Canada Universe bonds which posted 1.2% compared to 0.2% for long-term bonds.
“This analysis emphasizes the complexities of the Canadian pension landscape, and the importance of diversifying, and proactive risk management,” said Isabelle Tremblay, director, Client Solutions, Asset Owner Segment Lead at RBCIS. “The market continues to experience volatility due to ongoing geopolitical tensions. Inflation trended favourably in Q2 following the June Bank of Canada rate cut. With the consecutive rate adjustment announced in July, plan managers are continuing to adapt their strategies and navigate the evolving environment."
Further analysis
Meanwhile, the Northern Trust Canada Universe also highlighted a positive end to the second quarter for the DB pension plans included in its analysis.
It recorded a 1.1% median return for the quarter and a 3.5% year-to-date figure and reiterated the volatility of the markets.
“As we conclude the first half of 2024, a theme of sustainability permeated across the globe. We have seen it through central bank actions as policymakers seek a sustainable path of inflation in an effort to normalize monetary policy. This theme continues to echo across the Canadian pension plan landscape as plan sponsors demonstrate resilience and agility while navigating the economic elements of high interest rates, persistent inflation and waves of volatility,” said Katie Pries, president and CEO of Northern Trust Canada.
