2019 a strong year for pension managers’ pooled funds: Morneau Shepell

Pension funds ended 2019 on a strong note, with diversified pooled fund managers posting a median return of 2.6 per cent before management fees in the fourth quarter, according to Morneau Shepell Ltd.’s performance universe of pension managers’ pooled funds.

Year-to-date, the return was a stellar 15.8 per cent, with both stock and bond markets posting positive returns.

In particular, the bond market returned 6.9 per cent for the year, the Canadian equity S&P/TSX composite index returned 22.9 per cent and the U.S. equity S&P 500 index returned 31.5 per cent in U.S. dollars.

Read: Pooled pension fund managers rebound in 2019

“This excellent performance was offset by the stronger Canadian dollar, which scaled down the return in Canadian dollars to 25.2 per cent,” said Jean Bergeron, vice-president for the firm’s asset and risk management consulting team, in a press release.

More globally, the MSCI world index returned 21.2 per cent in Canadian dollars and the MSCI emerging markets index returned 12.9 per cent.  

The 2.6 per cent return in the fourth quarter was 0.5 per cent higher than the benchmark portfolio used by many pension funds, whereas the year-to-date 15.8 per cent return was 0.2 per cent lower than the benchmark portfolio.

“With respect to pension fund actuarial liability, the decrease in interest rates meant that solvency liability also rose significantly during the year,” said Bergeron. “Thus, although pension fund returns were very positive for 2019, on a solvency basis pension fund financial positions improved by an average of only about one per cent from the beginning of the year.”

Read: Canadian DB pension solvency on the rise but volatility ahead