Hefty equity gains drove Canadian DB pensions to double-digit returns in 2019

Canadian defined benefit plans posted a median return of 13.6 per cent for 2019, according to Northern Trust Canada’s pension universe.

North American equities led the way to double-digit returns for the year, with 1.9 per cent gains in the final quarter of the year, outpacing 1.6 per cent returns in the previous quarter.

“Despite a year plagued with negative headlines, fuelled with uncertainty and low expectations, Canadian pension plans navigated through the turbulence and continued on a journey of positive returns,” said Arti Sharma, president and chief executive officer of Northern Trust Canada, in a press release. “Equity markets closed 2019 in a strong position, realizing solid double digit gains for the year. As a result, plans in the Northern Trust Canada universe marked a considerable improvement over the negative one per cent median return in 2018.”

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The S&P TSX composite index returned 22.9 per cent for the year, its best annual return since 2010, with 3.2 per cent for the fourth quarter. While the labour market was softer early in the fourth quarter, employment numbers started to see a resurgence. Alberta’s government also lifted drilling restrictions on new oils wells, boosting the energy sector. Meanwhile, internet technology was the breakout sector, closing the year as Canada’s top performer.

However, U.S. equities outpaced Canadian equities, posting a return of 24.8 per cent when expressed in Canadian dollars, off positive announcements around U.S.-China trade and a strong rally in technology stocks.

International equities, as measured by the MSCI EAFE index, returned six per cent for the quarter, gaining a more modest 16.5 per cent for the year overall. Key drivers for the market included easing tensions on Brexit and the European Central Bank’s revamping of its quantitative easing strategy.

Read: Technology, consumers driving emerging market equities

Emerging markets posed a 12.9 per cent return for the year with hefty gains of 9.6 per cent pushing through during the fourth quarter. Political tensions in Latin America and Hong Kong were not enough to dampen enthusiasm generated by the improving trade relations between the U.S. and China.

On the fixed income side, domestic bonds, as measured by the the FTSE Canada universe index, saw a dip in the fourth quarter, posting a negative 0.9 per cent return. However, for the year overall, the index gave up a 6.9 per cent return.