Canadian defined benefit pension plans closed out 2016 with an annual return of 6.8 per cent, up from 5.4 per cent in 2015, according to a new report by RBC Investor and Treasury Services.

“Against a challenging economic and market backdrop at the outset of 2016, Canadian pension plans generated an impressive overall performance, with three consecutive quarters in the black,” said James Rausch, head of client coverage for Canada at RBC Investor and Treasury Services. That culminated in a 1.4 per cent increase in returns in 2016 compared to 2015, he added.

Despite global volatility, the report showed pension plan returns were boosted by Canadian equities; they returned 5.7 per cent in the fourth quarter of 2016 and ended the year with a 21.9 per cent annual return — slightly higher than the TSX Composite Index’s Q4 2016 return of 4.5 per cent and 21.1 per cent annual return.

Read: Canadian DB pension solvency reaches highest level in two years: survey

Canada’s three largest sectors (energy, materials and financials) posted strong results during 2016, helping lift returns.

Meanwhile, domestic fixed-income assets took a hit in the fourth quarter of 2016, posting a decline of 3.4 per cent, compared to a third quarter 2016 gain of 1.6 per cent. However, they finished the year in the black with a 2.4 per cent annual return. RBC’s report showed the interest rate hike by the U.S. Federal Reserve and global monetary policy outlooks contributed to the fourth-quarter dip.

It also showed global equities remained under pressure for much of 2016, returning three per cent in the fourth quarter, down from 6.7 per cent in the third quarter. Their 2016 annual return sits at 4.4 per cent, compared to 18.9 per cent in 2015. For its part, the MSCI World Index posted a 3.9 per cent return in Q4 2016 versus 6.1 per cent in Q3.

Looking ahead
, RBC calls for continued uncertainty. That includes the potential for interest rate hikes that may impact returns in 2017. It also said financial markets will continue to adjust to the Trump administration as his economic policies are unveiled throughout the year as well as developments stemming from post-referendum Britain and China.

Read: Investment returns predicted to fall as uncertainty leaves economy ‘most unstable’

Copyright © 2020 Transcontinental Media G.P. Originally published on

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