Canadian defined benefit pension plans’ assets experienced losses of 8.6 per cent in the second quarter of 2022, bringing year-to-date total returns to negative 14.7 per cent, according to a new report by RBC Investor and Treasury Services.
It was the most significant decline since the third quarter of 2008, when assets also fell by 8.6 per cent, noted the report.
“Uncertainty in the global economic landscape — particularly surrounding the war in Ukraine, substantial inflation, higher interest rates imposed by the central banks across the globe and a new strain of [the coronavirus] — contributed to this outcome,” said Niki Zaphiratos, managing director and head of asset owners in Canada at RBC Investor and Treasury Services, in a press release.
“The uptick of long-term bond yields, however, actually improved plans’ solvency ratios,” she added. “While this is good news for plan sponsors, investors need to remain cautious, given economists’ warnings around the prospects for more interest rate hikes over the second half of the year and the resultant negative impact on the global economy.”
Global equities decreased 12.2 per cent for the quarter and were down 18.5 per cent on a year-to-date basis. The MSCI world index returned negative 13.4 per cent over the quarter, with notable weakness in sectors such as consumer discretionary (negative 21.3 per cent), information technology (negative 19.2 per cent) and communication services (negative 16.8 per cent). The MSCI world growth index plummeted by 18.6 per cent, while the MSCI world value index saw a more moderate decline of negative 8.7 per cent.
Canadian equities kept pace with their global counterparts and again outperformed the benchmark, losing 11.3 per cent. The TSX composite index lost 13.2 per cent over the quarter.
Plans returned negative 9.8 per cent over the quarter in Canadian fixed income and were down 19 per cent on a year-to-date basis. Within the FTSE Canada universe bond index, the long-term bonds segment saw the highest decline, with the benchmark FTSE long bond index returning negative 11.8 per cent, while the short-term bonds segment returned negative 1.5 per cent.