Ontario Teachers’ posts -0.4% return for H1, rebalances away from fixed income

The Ontario Teachers’ Pension Plan posted a negative return of 0.4 per cent in the first half of 2020.

“The pandemic has brought some specific challenges,” said Jo Taylor, the plan’s president and chief executive officer, on a conference call on Tuesday. “Global economic growth has come to a standstill, job losses have spiralled upwards, consumer and worker confidence are at all times lows and stock markets remain volatile, inflated and uncertain.”

However, given the dramatic headwinds, the pension fund is weathering well, he added, noting its exposures to large retail real estate, airports and the energy sector were sore spots for the period.

Read: Ontario Teachers’ posts 10.4% gains for 2019, focuses on maintaining certainty

The plan spent the years leading up to the coronavirus pandemic fortifying the portfolio against a potential downturn in equities, noted Taylor. “After 10 years of continuous economic expansion, we felt it prudent to plan for a downturn. The key components of that defensive positioning were an increased exposure to fixed income and a more managed exposure to equities.”

And this higher exposure to fixed income was part of an “important cushion for the portfolio during the March collapse in global financial markets,” said Ziad Hindo, the Ontario Teachers’ chief investment officer, also speaking on the call.

In addition, in the years before the crisis, the pension fund increased its exposure to gold, drawn by its hedging and diversifying characteristics, he added, noting it also established an equity hedging strategy to protect against volatility and increased its liquidity capacity both as a precaution for a potential downturn and to have capital to deploy counter-cyclically.

Since the downturn, the Ontario Teachers’ shifted its fixed income position, dropping bonds from 36 per cent of the total portfolio to 14 per cent.

Read: CPPIB sees 5.6% return for first fiscal quarter