DB pension plans report solid Q3 growth, with equities and rate cuts boosting returns
RBC Investor Services (RBCIS) reported a median return of 5.1 percent in the third quarter of 2024 for defined benefit (DB) pension plans among its clients, culminating in a year-to-date return of 9.6 percent by September 30.
As part of RBCIS’s regular quarterly assessments, the analysis included DB plans spanning private and public sectors.
The global equities component within RBCIS DB pension plans posted a 5.5 percent gain, marginally outperforming the MSCI World Index’s 5.0 percent.
Leading sectors in the benchmark included Utilities, with a return of 16.1 percent, and Real Estate at 15.4 percent, while the Information Technology sector's minimal 0.2 percent increase tempered gains due to its large benchmark weighting.
In this quarter, the MSCI World Value Index achieved an 8.2 percent increase, exceeding the MSCI World Growth Index’s 2.2 percent.
Meanwhile, emerging markets performed strongly, as evidenced by the MSCI Emerging Markets Index’s 7.3 percent increase, with significant contributions from the Chinese equity market, which rose 21.9 percent.
Canadian equities within RBCIS client plans showed strong performance, supported by large exposures to value-oriented stocks, and produced a 9.6 percent return.
This figure was slightly below the TSX Composite Index, which rose 10.5 percent over the quarter, with Financials and Materials sectors providing substantial support at weights of 17.0 percent and 12.2 percent, respectively.
Within Canadian fixed income, RBCIS DB pension plans achieved a return of 4.9 percent, slightly surpassing the FTSE Canada Universe Bond Index’s 4.7 percent.
This quarter’s gains were influenced by the Bank of Canada’s ongoing interest rate cuts throughout 2024. Long-term bonds outperformed short-term bonds, as the FTSE Canada Long Term Bond Index rose 5.7 percent, compared to a 3.4 percent increase in the FTSE Canada Short Term Bond Index.
Isabelle Tremblay, Asset Owner Segment lead at RBC Investor Services, commented on the improved returns, highlighting an emphasis on diversification and proactive risk management.
She noted that with the Bank of Canada’s additional 50 basis point reduction in October and the US presidential election on the horizon, plan managers continue adjusting strategies to navigate the evolving landscape.
