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A weaker Canadian stock market and a stronger loonie conspired to produce mediocre returns for pension managers in the second quarter (Q2), according to a report from Morneau Shepell.

The Toronto-based consulting firm reports that diversified pooled fund managers underperformed in Q2, posting a median return of 0.7% before management fees. This trailed the benchmark portfolio return of 1.1% that many managers use, reflecting a mix of 55% equities and 45% fixed-income.

“In the second quarter, the Canadian stock market underperformed by 1.6%, while global stock markets posted positive returns,” the firm reports. Yet, a rise in the Canadian dollar (C$) vs several foreign currencies had a negative impact on many returns from foreign markets for Canadian investors, it says.

For example, the firm reports that emerging-markets equities returned just 6.7% in Q2, in local currency terms, but just 3.6% in C$. Similarly, U.S. equities returns reached 3.1%, but just 0.6% in C$.

Conversely, international equities in the MSCI EAFE index returned 2.7% in local currency, but 3.3% in C$, it notes.

On the fixed-income side, Morneau Shepell reports that pension managers obtained a median return of 1.1% on bonds in Q2, which was in line with the benchmark.

During the quarter, long-term bonds generated a 4.1% return, the return for medium-term bonds was negative 0.1%, and the return for short-term bonds was negative 0.4%.

“On a solvency basis, pension fund financial positions declined in the second quarter, largely due to lower interest rates in the first two months,” said Jean Bergeron, the partner responsible for the firm’s asset and risk management consulting team, in a statement. “The solvency liability for an average pension plan rose 6.2%, while the median return was only 0.7%.”

Morneau Shepell’s report is based on data provided by leading portfolio managers, ranging from independent investment management firms to insurance companies, trust companies and financial services institutions. The returns are calculated before management fees are deducted.

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