Canadian DB Pensions Post Near-Double-Digit Returns Despite Historic, Turbulent Year: RBC Investor & Treasury Services
Canadian defined benefit (DB) pension plans ended the year in positive territory against a backdrop of radical uncertainty. Retirement assets returned 9.2% overall in 2020 and 5.4% in the final quarter of the year, according to an All Plan Universe survey just released by RBC Investor & Treasury Services.
“It’s been a tumultuous time for the markets, but we’re seeing positive returns for a third consecutive quarter,” said David Linds, managing director and head of asset servicing, Canada. “The successful development of multiple Covid-19 vaccines was a contributing factor, as were the anticipated government support packages and the conclusion of the US elections.”
Linds continued, “Investor confidence may be tempered into 2021 as uncertainty surrounding the vaccine rollout, new virus strains, and other unknowns may place additional pressure on equity markets.”
Global equity markets, propelled by the investor optimism Linds mentioned, posted solid returns in the fourth quarter, with stocks in the energy and financials sectors leading those gains. But while value stocks outperformed growth stocks over the quarter, growth far outdistanced value for the year.
Foreign equities were the top-performing asset class in 2020, returning 12.6% overall, versus 13.9% for the benchmark MSCI World Index (10.1% and 8.7% respectively in Q4). During the quarter, a weakened US dollar led to a rise in commodity prices, which strengthened the Canadian dollar and trimmed unhedged plans’ foreign equity returns. While the MSCI World Index (CAD) index returned 12.4% in local currency terms, that translated to an 8.7% return in Canadian dollar terms.
Canadian equities returned 4.1% for the year (9.4% for the quarter), whereas the benchmark TSX Composite Index returned 5.6% for the year (9.0% for the quarter). The technology sector, propped by Shopify, led the market, returning 80.7% for the year. Materials (21.2%) and consumer discretionary (17.1%) trailed significantly. Energy was the lowest performing sector (-26.6%).
Domestic bonds returned 11.1% in 2020 (1.1% in Q4), compared to 8.7% for the FTSE TMX Canada Universe Bond Index (0.6% in Q4). Longer dated bonds benefited from the steep drop in longer term yields during the first two quarters and handily outperformed their shorter dated counterparts over the entire year. The FTSE TMX Long Bond Index returned an annual 11.9% versus the FTSE TMX Short Term Bond Index’s annual return of 5.3%.
Historic performance
|
Period |
Median return (%) |
Period |
Median return (%) |
|
Q4 2020 |
5.4 |
Q3 2018 |
0.1 |
|
Q3 2020 |
3.0 |
Q2 2018 |
2.2 |
|
Q2 2020 |
9.6 |
Q1 2018 |
0.2 |
|
Q1 2020 |
-7.1 |
Q4 2017 |
4.4 |
|
Q4 2019 |
2.0 |
Q3 2017 |
0.4 |
|
Q3 2019 |
1.7 |
Q2 2017 |
1.4 |
|
Q2 2019 |
2.7 |
Q1 2017 |
2.9 |
|
Q1 2019 |
7.2 |
Q4 2016 |
0.5 |
|
Q4 2018 |
-3.5 |
Q3 2016 |
4.2 |