Canadian pension plans have improved their solvency position in Q1 due to a strong performance in equities and a slight increase in long-term interest rates. The Mercer Pension Health Index was at 87% on March 31, up from 82% at the beginning of this year.
“All the key drivers of pension plan health moved in the right direction in the first quarter of 2013,” said Manuel Monteiro, a partner in Mercer’s financial strategy group. “Equity markets performed very well, long-term interest rates edged up, and plan sponsors have been making contributions to fund the deficits.”
“A typical balanced pension portfolio returned 4.1% (not annualized) in the first quarter,” said Rob Stapleford, a partner in the firm’s investment consulting business. “Developed global equities returned about 10%, while emerging markets were essentially flat on the quarter. These returns benefited many plans that have diversified their equity holdings in recent years by increasing fund allocations to global equities while reducing their exposure to the concentrated Canadian stock market.”
Other findings for the first quarter were as follows:
- • Canadian equities returned 3.3%.
• The best performing S&P/TSX sectors were healthcare (22.8%), IT (17.5%) and industrials (14.2%); the worst performing were materials (-10.4%), utilities (0.5%), and financials and energy (both 4.2%).
• Large cap stocks returned 3.3%, outperforming small cap, which returned 0.6%.
• In Canadian dollar terms, the S&P 500 Index returned 12.9%; international equities, 7.4%; and emerging markets, 0.4%.
• The Canadian dollar strengthened against the pound, euro and yen but weakened against the greenback.
• At the end of Q1, the yield on the DEX Universe Index was 2.2% while the yield on the DEX Long Term Bond Index was 3.3%. The DEX Universe Bond Index returned 0.7%; the DEX Long Bond Index returned -0.3%.