Canadian defined benefit pension plans experienced an upsurge in the second quarter of 2020, posting a median return of 9.6 per cent, according to RBC Investor and Treasury Services’ universe of DB pension plans.
After the first quarter’s median return of negative 7.1 per cent, the rally marked the highest single quarter return in the universe’s history, according to a press release, which noted the gains followed a series of aggressive fiscal and monetary support measures introduced in March to address the impact of the virtual shutdown of the global economy due to the coronavirus.
After their March lows, global equity markets recovered most of their first quarter losses. The median pension plan generated 13.9 per cent in its non-Canadian equity holdings, compared to 14.2 per cent for the MSCI world index.
In Canada, the TSX composite index returned 17 per cent, with 10 out of the 11 economic sectors generating positive returns. Information technology, led by Shopify Inc., took the top spot (up 68.3 per cent), followed by the materials, consumer discretionary and energy sectors. The median Canadian equities returned 13 per cent, trailing the benchmark by four per cent. On a year-to-date basis, Canadian equities returned negative 10.4 per cent.
Fixed income securities returned 8.7 per cent, compared to 5.9 per cent for the FTSE TMX Canada universe bond index. Positive returns were generated by both the decline in longer term yields and the tightening of credit spreads, according to RBC.
“The actions the Bank of Canada and federal government have taken over the past months to support the economy and financial system are unprecedented — not even seen following the 1929 stock market crash — and the markets have been quick to respond,” said David Linds, managing director and head of asset servicing for Canada, in the release.
“In this environment, where so many of us are at home, it continues to be somewhat of a winner-takes-all scenario, with the market being driven primarily by companies that have continued to exhibit growth and safe haven investments, such as precious metals. The long-term implications of COVID-19 on the economy are unclear.”