Investor anxiety over inflationary pressures and COVID crisis lead to worst median return since Q1 2020
The median return on Canadian defined benefit pension plans in the first quarter of 2022 was -5.5%, the lowest quarterly performance since Q1 2020 (-7.1%), according to the RBC Investor & Treasury Services All Plan Universe.
"The market experienced growing economic and geopolitical uncertainties during the first quarter of 2022," said Niki Zaphiratos, Managing Director, Asset Owners, RBC Investor & Treasury Services. "Russia's invasion of Ukraine has amplified existing investor anxiety over growing inflationary pressures and the Covid crisis."
The MSCI World Index returned -6.2% during the quarter, indicating that global equities markets were extremely volatile.
Concerns about rising interest rates and further disruptions to global supply chains caused growth style equities (MSCI World Growth, -10.7%) to outperform value style stocks (MSCI World Value, -1.8%).
During the quarter, foreign equities in the RBC All Plan Universe returned -7.5%. The Canadian dollar's strength exacerbated some of the unhedged plans' local currency losses.
The Canadian stock market (S&P/TSX Composite, +3.8%) profited from its huge exposure to rising commodities equities, and it was the only developed equity market to end the quarter in the black.
Losses in the information technology (-35.5%) sector offset gains in the energy (+28.7%) and materials (+20.1%) sectors.
Plan-held Canadian stocks climbed 3.9%, outperforming the whole market index.
Central banks stepped away from ultra-loose monetary policies utilized during the pandemic and signaled vigorous measures to confront rising inflationary pressures, causing bond rates to rise significantly across the yield curve.
Long-term bonds (FTSE Canada Long-Term Bond Index -11.7%) underperformed short-term bonds, resulting in a -7.0% drop in the FTSE Canada Universe Bond Index for the quarter (FTSE Canada Short Term Bond Index, -3.0%).
The average return for RBC All Plan Universe Canadian Fixed Income was -9.8%.
"The current geopolitical risk has compounded the existing headwinds facing pension plans – and we are now looking at the possibility of a sharp increase in interest rates which could lead to the devaluation of risky assets," Zaphiratos said. "Plan sponsors will need to tread carefully in the months ahead."
