Canadian discretionary pooled pension funds barely gained ground during the third quarter of 2004, with the median manager returning 0.1%, even lower than the 0.3% return posted in the second quarter, according to the quarterly survey of pooled fund performance by Mercer Investment Consulting.

On a year-to-date basis, the median manger has posted a year to date return of 4.5%.

“Positive returns in Canadian equities and bonds were largely offset by the negative returns on foreign equities and were exacerbated by the strength of the Canadian dollar. And, while discretionary fund returns were generally flat last quarter, the overall financial health of pension plans declined because pension plan liabilities increased due to declining long bond yields,” said Peter Muldowney, principal for Mercer Investment Consulting in Canada, in a release.

This picture is reflected in Mercer’s Canadian Pension Health Index, an indicator of the impact of capital markets on the financial position of Canadian pension plans. The Index fell to 88% by the end of September 2004 from 92% in June 2004.

According to the survey, Canadian bonds were the best performing asset class with the Scotia Capital Universe index returning 2.8%. Canadian bond managers matched this performance. The Scotia Capital Long Term Overall index returned 4.7% and real return bonds achieved a return of 2.4% over the quarter.

The Canadian equity market followed, with the S&P/TSX Composite index returning 1.9%. The median Canadian equity manager outperformed the index by 0.2% during this period. Large cap stocks were the best performers, returning 2.5% as shown by the S&P/TSX 60.

The performance of mid cap stocks was flat, as shown by the S&P/TSX Mid Cap, and that of small cap stocks had a slight negative return of -0.3% as shown by the S&P/TSX Small Cap index.

For foreign equity markets, Mercer notes that the strength of the Canadian dollar over the quarter contributed to the negative returns for Canadian investors.

The MSCI EAFE returned -5.8% in Canadian dollar terms over the quarter, with the median equity manager outperforming the index by 0.2%.

U.S. equities was the worst performing asset class, with the S&P 500 returning -7.4% in Canadian dollar terms. U.S. equity managers underperformed the index by 0.1%. In U.S. dollar terms, the decline of the U.S. markets was -1.9%.

Information on the Mercer universe statistics and on the Mercer Pension Health Index is available quarterly at www.mercerIC.com. The survey for the third quarter of 2004 included 54 fund managers.