Universe of pension plans show near-double digit returns despite backdrop of radical uncertainty
Canadian defined-benefit (DB) pensions have shown strong performance and ended 2020 on a positive note, according to a new survey from RBC Investor & Treasury Services.
Based on its All Plan Universe, which tracks the performance and asset allocation of a cross-section of assets under management across Canadian DB pension plans, RBC I&TS found that retirement assets returned 9.2% overall in 2020 and 5.4% in the final quarter of the year.
“It's been a tumultuous time for the markets, but we're seeing positive returns for a third consecutive quarter,” said David Linds, managing director and head of Asset Servicing, Canada. “The successful development of multiple Covid-19 vaccines was a contributing factor, as were the anticipated government support packages and the conclusion of the US elections.”
|
Period |
Median return (%) |
|
Q4 2020 |
5.4 |
|
Q3 2020 |
3 |
|
Q2 2020 |
9.6 |
|
Q1 2020 |
-7.1 |
|
Q4 2019 |
2 |
|
Q3 2019 |
1.7 |
|
Q2 2019 |
2.7 |
|
Q1 2019 |
7.2 |
|
Q4 2018 |
-3.5 |
|
Q3 2018 |
0.1 |
|
Q2 2018 |
2.2 |
|
Q1 2018 |
0.2 |
|
Q4 2017 |
4.4 |
|
Q3 2017 |
0.4 |
|
Q2 2017 |
1.4 |
|
Q1 2017 |
2.9 |
|
Q4 2016 |
0.5 |
|
Q3 2016 |
4.2 |
Driven by investor optimism, global equity markets showed solid fourth-quarter returns led by stocks in the energy and financials sectors. Value stocks outperformed growth stocks over the quarter, flipping a trend of growth far outperforming value that was reflected in full-year 2020 numbers.
Foreign equities proved to be the best-performing asset class last year, with 12.6% returns overall compared to 13.9% for the MSCI World Index, though Q4 saw gains of 10.1% and 8.7% for foreign stock securities and the benchmark, respectively.
Commodity prices rose as the U.S. dollar weakened, leading to a strengthening of the Canadian dollar that detracted from unhedged plans’ foreign equity returns. The MSCI World Index (CAD) posted a 12.4% return in local currency terms, which translated to an 8.7% return in Canadian dollar terms.
Canadian equities returned 4.1% for the year and 9.4% for Q4, respectively; the corresponding figures for the benchmark TSX Composite were 5.6% and 9%. The technology sector, prominently represented by Shopify, led the market with an 80.7% full-year return; materials and consumer discretionary stocks, meanwhile, trailed significantly at 21.2% and 17.1%, respectively. The poorest performance came from the energy sector, which showed a 26.6% decline.
From a fixed-income perspective, domestic bonds returned 11.1% in 2020 and 1.1% in Q4, comparing favourably to the FTSE TMX Canada Universe Bond Index’s 8.7% and 0.6% during the respective periods. The plunge in longer-term yields proved beneficial for longer-dated bonds, which comfortably outperformed their shorter-dated counterparts over the full year; the FTSE TMX Long Bond Index posted an annual 11.9% return, compared to 5.3% for the FTSE TMS Short Term Bond Index.
