The final quarter of 2018 was choppy for pension managers’ pooled funds as they posted a median return of negative 5.6 per cent, contributing to the year’s overall median return of negative 2.7 per cent, according to Morneau Shepell Ltd.’s pension performance universe.
“The bond market posted a positive return of 1.4 per cent for 2018,” said Jean Bergeron, vice-president responsible for Morneau Shepell’s asset and risk management consulting team, in a press release. “The Canadian equity S&P/TSX composite index posted a return of negative 8.9 per cent and the U.S. equity S&P 500 index [posted] a return of negative 4.4 per cent, in U.S. dollars.”
While funds performed under benchmark by 0.4 per cent for the year overall, the benchmark portfolio, with an allocation of 55 per cent equity and 45 per cent fixed income, also posted a negative return.
“This lacklustre performance was offset by the depreciation of the Canadian dollar, which upped the return in Canadian dollars to 4.0 per cent,” said Bergeron. ”The MSCI World index obtained a return of negative 0.5 per cent and the emerging markets index posted a return of negative 6.5 per cent, both in Canadian dollars.”
Fixed income did show some life, with managers seeing a median return on 1.6 per cent for Canadian bonds during the fourth quarter of 2018. However, returns were still 0.2 per cent below the benchmark index.
As for domestic equities, managers saw a negative 9.8 per cent, which was slightly higher than the overall S&P/TSX index’s negative 10.1 per cent during the fourth quarter. Small-caps were the worst offenders for Canadian equities, losing 18.2 per cent, whereas mid-caps lost 12.9 per cent and large-caps decreased 7.6 per cent.
U.S. stocks fared better with managers, gaining a 5.4 per cent return and beating the overall S&P 500 index return of four per cent for the quarter. International equities dragged fund portfolios down, losing 7.4 per cent, with global stocks giving up 1.7 per cent, both performing worse than their respective benchmarks. Emerging markets fund managers performed marginally worse than their benchmark, posting a negative 6.9 per cent return, versus a negative 6.5 per cent for the MSCI emerging markets index.
“Pension fund solvency liability was up slightly, remaining relatively stable compared to the beginning of 2018,” said Bergeron. “However, given the negative returns, pension fund financial positions on a solvency basis have deteriorated. The solvency ratio for an average pension plan has fallen by about two to 3.5 per cent since the beginning of the year.”