Global market volatility drove Canadian defined benefit pension plans’ median returns lower in the second quarter of 2019, according to BNY Mellon Asset Management Canada Ltd. and RBC Investor and Treasury Services.
Among the 84 Canadian corporate, public and university pension plans in BNY Mellon’s tracking service, the quarterly return was just 2.34 per cent, compared to 7.02 per cent in the previous quarter. As of June 30, 2019, the one-year median return was 6.14 per cent. Canadian foundations and endowments posted the lowest median returns, at 1.42 per cent, while Canadian university plans performed better, at 2.03 per cent.
Read: Defined benefit pension returns flat in third quarter: surveys
“Equity markets around the globe fluctuated during the second quarter, reporting only modest performance as compared to last quarter’s higher returns,” said Catherine Thrasher, vice-president of strategic client solutions for CIBC Mellon and managing director for BNY Mellon global risk solutions, in a press release. “Despite market volatility and slowing global growth, all traditional asset classes posted positive results for the quarter and outperformed alternative assets.”
Across asset classes, Canadian fixed income performed the best, with a quarterly median return of 2.92 per cent. Among stocks, domestic equity had the highest return, at 1.95 per cent, followed by U.S. equity at 1.36 per cent. International equities posted positive but more modest returns, at 1.2 per cent. Emerging markets stocks were negative, falling 0.68 per cent for the quarter.
Read: Canadian investors standing out on alternative asset allocation: survey
In alternative asset classes, real estate saw a median return of 1.14 per cent, followed by private equity (0.76 per cent) and hedge funds (0.56 per cent).
RBC Investor and Treasury Services’ universe of DB plans showed similarly modest quarterly gains at 2.7 per cent in the second quarter, down down from 7.2 per cent in the first quarter.
It noted Canadian equities had a major slow-up during the second quarter, posting a return of 2.3 per cent, down from 12.4 per cent in the previous quarter and underperforming the S&P/TSX composite index, which posted 2.6 per cent and 13.3 per cent, respectively for the quarters.
Read: Canadian DB pension returns boosted by rallying equities in Q1 2019
“The first half of 2019 has been positive for Canadian defined benefit pension plans and all indicators show that the Canadian economy is healthy, but small cracks are beginning to appear,” said Ryan Silver, RBC Investor and Treasury Services’ director and head of pension and insurance segments and global client coverage, in a press release.
Global equities had a tougher quarter with returns of just 1.8 per cent, compared to 9.9 per cent in the year’s first quarter, with the MSCI World index returning 1.7 per cent, down from 10 per cent. Fixed income returns dipped as well, with domestic securities returning 3.7 per cent, down from 5.6 per cent, while the FTSE Canada universe bond index posted a 2.5 per cent return, down slightly from 3.9 per cent.
“Geopolitical and trade unrest, as well as slowing global economies, continue to persist and Canadian investors are growing increasingly aware of their impact on our markets and economy,” said Silver. “Second quarter growth can be considered healthy, but modest, and managers will need to maintain their cautious approach and actively manage their portfolios and risk exposure.”
Read: Ontario DB plans’ solvency drops in last quarter of 2018: FSCO