Canada's DB pension plans have seen their worst quarter since 2008

The "exceptionally difficult period" led to a steep decline in returns in the first quarter of 2020 says RBC Investor & Treasury Services

Canada's DB pension plans have seen their worst quarter since 2008
Steve Randall

After avoiding disaster at the end of last year, Canada’s defined benefit (DB) pension funds took a hit in the first quarter of 2020, with the steepest decline in performance since the Great Recession in 2008.

RBC Investor & Treasury Services’ All Plan Universe analysis of plans’ performance shows a median return of -7.1% for the quarter as commodities and stocks slumped.

MSCI World Index posted a quarterly return of -13.3%, with growth stocks considerably outperforming value stocks. Energy stocks were worst affected while technology fared the best.

Meanwhile, Canada’s S&P/TSX Composite Index posted a return of -20.9% for the quarter, wiping out the annual gains from 2019 and significantly underperforming the global market. The pandemic’s impact was worsened by the natural gas pipeline dispute and the international oil price war.

There was some benefit for plans from a 1.6% increase for the FTSE Canada Universe Bond Index. This was driven by interest rate cuts by the Bank of Canada, which steepened the yield curve, and short term bonds outperformed their longer term counterparts. Investors moved away from riskier options as government bonds provided a safer haven.

"It has been an exceptionally difficult period for Canadian pension plans to navigate, as the markets have been experiencing an unprecedented amount of volatility across asset classes," reported David Linds, Head, Canadian Asset Servicing, RBC Investor & Treasury Services. "However, the substantial monetary and fiscal policy response from governments across the globe gives us room for optimism. While it's difficult to speculate on what may happen over the short term, we hope these measures will lead to some reawakening of our economic growth in the near future."