Canadian Pension Investments Surge Ahead in Q3

October 30, 2003 ( - Canadian pension funds continue to turn in solid gains on the backs of balanced fund and Canadian equity investments.

Canadian equity investments returned 6.5% as of the close of the third quarter and are now up 12.9% since the start of 2003.   Although somewhat lower, balanced funds posted a 3.9% gain for the quarter ending September 2003, boosting year-to-date performance to 6.9%, according to RBC Global Services’ BENCHMARK universe.

Even though the return numbers for Canadian equity investments were impressive, only 38% of pension equity managers beat the 13.9% return of the S&P TSX composite index year-to-date. “Most active managers shied away from the run-up in technology stock prices that produced a spectacular 48% return in the sector,” said Fred Francis, vice-president, Value-Added Products, RBC Global Services . “With just 2.4% of domestic equity portfolios in high-flying tech stocks – less than half the weighting in the S&P TSX composite – the median manager underperformed the market index by 1% since the beginning of the year.”

Over the longer term though, Canadian equity investments have done better than their benchmark.   While Canadian equities have returned -0.3% over the previous three years, the S&P TSX composite turned in a -9% performance, after turning in a 7.4% return over the previous five years compared with Canadian equities running up 11.8%.

Perhaps the most positive long-term news came out of the balanced fund investments. “The median five-year return has rebounded to 6.5%, approaching the level that most pension plans require to meet their funding obligations,” noted Francis. “This upswing is heartening news for Canadian companies struggling with pension fund shortfalls – which haven’t quite turned the corner yet.”   Even more encouraging is the 10-year returns of 8.4% for this category.  

Global stock markets also surged ahead with the MSCI World index rising 12.6% year-to-date in local currency terms. For Canadian-pension fund managers, however, the picture was less rosy, with the soaring Canadian dollar nullifying foreign market gains. Taking currency into account, the global assets of Canadian pension funds actually shrank by 0.3%.

The results are based on the RBC Global Services BENCHMARK universe, a proprietary database of over 2,200 institutional portfolios with total assets of $250 billion. All returns listed are gross of fees.