It’s been a good year for Canadian pension plans so far, with funds showing their best results in close to two years, according to a survey by RBC Dexia Investor Services.
Within the $420 billion RBC Dexia All Plan universe, Canadian DB pensions earned 4.5% in the quarter ending March 31, 2012—the largest reported gain since the third quarter of 2010.
The jump can be partially attributed to foreign equities, which led the charge with a median return of 9.9%, outperforming the benchmark MSCI World index by 0.4%.
“The appetite for equities gained steam, reflecting a renewed sense of tempered optimism and the continued need for pension plans to seek higher returns through increased equity allocation,” said Scott MacDonald, head of pensions, insurance, financial institutions segments with RBC Dexia.
“Double digit returns from the consumer discretionary, financials and information technology sectors contributed to the foreign equity rally.”
Canadian equities also benefitted from a strong January and February to withstand a rather lacklustre March. Pensions outperformed the S&P TSX Composite index, gaining 5.6% compared to the benchmark performance of 4.4%.
“The strength of bank earnings helped the financials sector gain 11% over the quarter, and the equities success story continued with eight of the 10 sectors in the S&P TSX Composite index ending the quarter in positive territory,” said MacDonald.
In contrast, bonds were the underperformers in the first quarter, as fixed income holdings in both the DB universe and the DEX Universe Bond index dropped a marginal 0.2%.
“In the first quarter of 2012, signs of economic stability in Europe and improved U.S. economic data led investors to take on more risk,” said MacDonald. “The spread between government and corporate bonds narrowed in the first quarter as investors looked for higher returns from the space.”