Public equity performance boosts Canadian DB plans in second quarter: report

Strong public market performance helped Canadian defined benefit pension plans reverse their first-quarter losses, according to a new report by BNY Mellon Asset Management Canada.

The median second quarter return for the 84 Canadian corporate, public and university pension plans in BNY Mellon’s Canadian master trust universe was 9.23 per cent, up from the first quarter median return of negative 7.23 per cent. As of June 30, 2020, the one-year median return was 5.1 per cent and the median 10-year annualized return was 8.57 per cent.

“Despite ongoing pandemic concerns, public markets rebounded with significant positive returns in the second quarter,” said Catherine Thrasher, head of strategic client solutions and global risk solutions for CIBC Mellon and BNY Mellon. “Canadian plan sponsors benefitted with positive performance results, led by equities from all regions.”

Read: Canadian DB plans see upsurge in second quarter: report

Within the BNY Mellon universe, U.S. equities led the pack with a return of 15.11 per cent, slightly underperforming the S&P 500 index’s return of 15.35 per cent. Canadian equities within the universe posted a median 14.11 per cent return, falling behind the S&P/TSX composite index return of 16.97 per cent.

While non-Canadian equity reported a 13.5 per cent return, it underperformed its benchmark, the MSCI world index, which saw a 14.39 per cent return. International equity within the universe rose by 10.89 per cent, outperforming the MSCI EAFE index return of 10.12 per cent.

The universe’s fixed income median return was 7.91 per cent, beating the FTSE Canada universe bond index return of 5.87 per cent.

Read: Canadian DB plans return negative 7.1% in first quarter

Looking at alternative asset classes, private equity delivered the lowest return, at negative 4.84 per cent, which BNY Mellon said was due to updated valuations from the first quarter. However, the asset class’ one-year median return was a solid 8.13 per cent.

Real estate returned a median negative 2.75 per cent for the quarter, while hedge funds rose by 2.49 per cent, up from 1.47 per cent in the first quarter.

Notably, Canadian university pension plans within the universe reported the highest performance of a median 9.85 per cent.

Read: What are the implications for pension funds coming out of coronavirus crisis?