Canadian pooled pension funds falling below benchmark

While Canadian pooled pension funds navigated the turbulence brought about by Brexit fairly well, they’ve underperformed the S&P TSX index

A recent report from a Canadian human resources consulting firm says that, on average, pooled pension funds underperformed the S&P TSX Index in the second quarter.

Based on figures stated in Morneau Shepell’s Performance Universe of Pension Managers' Pooled Funds, diversified pooled fund managers posted a median return of 2.5% before management fees in the second quarter of 2016, 1% lower than the benchmark portfolio and 1% lower than the return used by many pension funds, which is 3.5%. The median year-to-date return was 2.5%.

“Pension funds had a very good quarter despite market uncertainty and volatility stemming from the United Kingdom referendum on leaving the European Union,” stated Jean Bergeron, the partner responsible for Morneau Shepell's Asset and Risk Management Consulting team. “Canadian equities had high returns again, with the S&P TSX Index posting 5.1% for the quarter and 9.84% since the beginning of the year. For the most part, however, managers of Canadian equity portfolios were not able to match that performance.”

Bergeron continued: “The decline in interest rates helped bond managers to obtain a median yield of 2.84%. Global and emerging markets equities also posted positive returns in the second quarter. On a solvency basis, despite good market advances, pension fund financial positions declined slightly. Since the start of the year, the solvency ratio of the average pension plan has fallen by 1.1%.”

With an allocation of 55% in equities and 45% in fixed-income securities, the S&P TSX Index managed a return of 5.1% on equities and 2.6% return on bonds in the second quarter of 2016. The median returns on equities obtained by managers were 2.7% on equities and 3.3% on bonds.

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