Canadian pension plans finished 2015 in positive territory with an annual return rate of 5.4%, according to a report by RBC Investor & Treasury Services.
It reported that Canadian defined benefit pension plan assets rebounded from back-to-back losses in the second and third quarters of 2015, posting a gain of 3.1% in Q4 2015, compared with -2% in Q3 and -1.6% in Q2.
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“Canadian pension plans were not immune to the persisting market and economic headwinds that buffeted 2015, posting back-to-back quarters of negative returns at the mid-year mark, but they closed the year in positive territory with a moderate 5.4% annual return rate,” said David Heisz, CEO of RBC Investor Services Trust, RBC Investor & Treasury Services.
“Canadian pension plans clearly benefited from global diversification portfolio strategies. The positive 2015 return rate can largely be attributed to a lift from global equities which offset much of the downward pressure from weaker domestic sectors, particularly commodities, resources and energy, over the course of the year.”
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The report found that pension returns from global equities ended the fourth quarter and the full year up 8.9% and 18.9%, respectively.
Returns from Canadian equities improved in the fourth quarter, posting a loss of -0.5% compared with -7.8% in the previous quarter.
“Returns from global equities were boosted due to the ongoing weakness in the Canadian dollar, which had a tumultuous year on the back of tumbling crude oil prices,” said Craig Wright, senior vice president and chief economist at RBC. “Ranked as the worst-performing G10 currency, the Canadian dollar finished the fourth quarter of 2015 with a loss of 3.6% against the U.S. greenback.”
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The report also found that returns from Canadian fixed income assets helped underpin the overall positive performance of DB plans, registering a 1.1% return in Q4 and ending the year at 3.6%, compared to the FTSE TMX Universe Canadian Bond Index with its 3.5% annual return.
“Fixed income assets were also impacted by ongoing economic volatility in 2015,” said Heisz. “Highly variable inflation as well as gloomy economic and central bank outlooks meant bond yields experienced a wide range of movement. That said, short-term yields recovered enough to allow pensions to register positive returns for the last quarter, breaking a negative streak in the two preceding.”
The report also said that a number of factors will continue to impact the performance of Canadian pension funds in 2016, including China’s slowing economy, geopolitical issues and oil prices.