Canada’s defined benefit pension plans experienced flat performance in the first quarter of 2020, with the median plan’s returns declining by 0.2 per cent in the first three months of 2021 after rising 10 per cent through 2020, according to Northern Trust Canada’s pension universe.
Equity performance was strong during the quarter. Canadian equities, as measured by the S&P/TSX composite index, were up 8.1 per cent, led by the health-care and energy sectors. U.S. equities, as measured by the S&P 500 index, gained 4.7 per cent, led by the energy and financial sectors. International developed market equities, as measured by the MSCI EAFE index, rose 2.2 per cent, also led by energy and financials. And emerging markets, as measured by the MSCI emerging markets index, posted a return of 1.0 per cent.
However, over the same period, Canadian bonds, as measured by the FTSE universe bond index, were down 5.0 per cent, with provincial bonds and long-term bonds delivering the weakest returns. During the quarter, the Canadian yield curve steepened as future growth prospects and concerns about potentially rising inflation drove bond prices lower, dampening pension plan returns.
“Vaccination progress has given plan sponsors a more optimistic view of the future path to recovery,” said Katie Pries, Northern Trust Canada’s president and chief executive officer, in a press release. “This positive outlook, however, triggered bond returns to enter negative territory, diminishing the impact of equity investment gains.”