Canadian pension plans ended 2023 with strong median return

Northern Trust data shows market surge topped off strong year

Canadian pension plans ended 2023 with strong median return
Steve Randall

Canadian pension plans enjoyed a late market surge in 2023, a good way to end a year that provided strong returns.

Despite the Middle East tensions which dampened investor sentiment at the start of the fourth quarter, the Northern Trust Canada Universe reveals a median return of 8.4% for the three moths that ended the year, bringing the overall median return for 2023 to 10%.

Although the geopolitical risks continued through the quarter, markets shifted their attention to monetary policies including the pausing of interest rates by major central banks as inflation slowed. Stocks and bonds both gained in the fourth quarter as investors digested policymakers’ comments and considered whether recession risk was easing.

“This past quarter and year were undoubtedly a period enfolded in a blanket of volatility. Notwithstanding the waves of uncertainty throughout the year, a focus on geopolitical and economic trends has been paramount for pension plans. As financial markets turned their attention to economic data driving their underlying pulse and pace, plan sponsors have increasingly adopted complex asset strategies that enhance portfolio diversification and drive long term sustainability of their investment programs. Understanding and navigating the current and future trends is a key building block to healthy retirement plans,” said Katie Pries, president and CEO of Northern Trust Canada.

Among the highlights for Canadian pension plans in the fourth quarter of 2023 were an 8.1% gain for the S&P/TSX Composite Index (up 11.8% for the year) led by IT, and an 8.9% quarterly gain for the S&P 500 in the US (in Canadian dollar terms), led by real estate and IT.

There were also gains for international (the MSCI EAFE Index was up 7.7% in Canadian dollar terms) and emerging markets (the MSCI Emerging Markets Index rose 5.3% in Canadian dollar terms).

The Canadian fixed income market, as measured by the FTSE Canada Universe Bond Index, advanced 8.3% for the quarter and 6.7% for the year. This was driven by outperformance of provincial bonds while corporate bonds were the top performer for the year. Long term bonds led performance for the quarter advancing 14.8% and outpaced short and mid-term bonds for the year.