Equities drag down pension funded status, U.S. plan returns

The funded status of the Segal Group Inc.’s model multi-employer pension plan dipped to 98 per cent during the first quarter of 2018, down from 101 per cent in the third quarter of 2017, according to a new report.

Canadian equities took the lead in dragging the fund lower, partially due to its higher weighting of domestic equities at 25 per cent, with 15 per cent each in U.S. and international equities and 45 per cent in Canadian bonds.

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The Segal Group noted Canadian equities fell in the quarter due to tensions around the North American Free Trade Agreement, as well as friction around oil pipelines in western Canada. Canadian fixed income was totally flat, while international equities made gains and investors breathed a sigh of relief over the de-escalation of the nuclear standoff with North Korea.

Further, new data from Northern Trust Corp. found institutional investors in the United States had a difficult time in the first quarter of 2018, with the median plan posting a loss of 0.4 per cent.

“Market uncertainty meant there were few places to hide in the first quarter,” said Mark Bovier, regional head of investment risk and analytical services at Northern Trust, in a press release.

“Publicly-traded equities returned a negative 0.3 per cent at the median in the Northern Trust universe, and the median fixed income program lost one per cent. Alternatives were in positive territory, with the median private equity program up 2.2 per cent and real estate and hedge funds gaining a more modest 0.6 per cent and 0.9 per cent, respectively.”

Read: Hefty equity returns lead to strong gains for U.S. institutional investors in 2017

Meanwhile, foundations and endowments measured by Northern Trust were the only group to generate positive returns for the quarter, with a median rise of 0.2 per cent.

“The first quarter marked the first negative median quarterly return since the third quarter of 2015 and only the ninth negative quarterly median return since the end of the financial crisis,” said Bill Frieske, senior investment performance consultant, investment risk and analytical services at Northern Trust, in a press release.

“It has been pretty much straight up for investors since the end of the global financial crisis, with only nine quarters of negative median results out of 36 quarters since the second quarter of 2009. In that period, the median plan has returned 11.3 per cent, annualized. Looking back before the financial crisis, 10-year median returns were closer to seven per cent.”

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