Canadian DB pension plans did OK in the first quarter, Northern Trust data shows

Canadian defined benefit pension plans posted a median return of 2.5% in the first three months of 2024, despite challenging conditions.

The Northern Trust Canada Universe analysis reflects a weaker median return than in the previous quarter (8.4%) and comes amid uncertainty and volatility due to inflation and central bank’s interest rate decisions.

Canadian equities gained by the end of the first quarter as investors reacted to long-term inflation expectations and dovish tones on rates from the Fed and the BoC. The S&P/TSX Composite Index rose 6.6% in the quarter with most industries gaining, led by health care, energy, and industrials.

U.S. equities surged with the S&P 500 Index up by an impressive 13.5% for the quarter, driven mainly by the performance of the “Magnificent Seven.” International markets advanced 8.7% according to the MSCI EAFE Index and The MSCI Emerging Markets Index increased 5.1% (all in Canadian dollar terms).

Bond markets were less confident and saw retraction as yields climbed, resulting in negative returns for pension plans’ bond holdings.  

The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index, declined -1.2% for the quarter. Provincial and Federal bonds witnessed declines while Corporate bonds posted a slight gain for the quarter. In terms of bond durations, long-term and mid-term bonds generated negative returns while short-term bonds observed a small gain for the period.

“The transition through interest rate cycles within the economic ecosystem quite often can be a challenging path, necessitating the need for quality and granularity of data, comprehensive integrated tools and sound investment strategies, as pension managers navigate this journey,” said Katie Pries, President and CEO of Northern Trust Canada. “The strength of Canadian pension returns this quarter validated the pension toolkit, a bespoke asset utilized by plan sponsors, is channelling pension plans on a course to sustainable financial health.”