The Canada Pension Plan earned approximately $2.3 billion for an estimated 5.7% return in the fiscal year ended March 31.

The bulk of the return came on fixed-income assets. The CPP holds $39.3 billion in fixed-income securities, and $14.3 billion in equities. The fixed-income securities were split between $32.6 billion in federal and provincial government bonds and $6.7 billion in cash-equivalent government securities. These assets generated investment income of $2 billion for an estimated 5% return. In the prior year, fixed-income assets totalled $42 billion and earned $3.8 billion.

The equity portfolio consisted 97% of public equities in externally managed funds that replicate market indexes in Canada, the United States and outside North America, and 3% in externally managed private equity portfolios. The $14.3 billion total equity portfolio compared with $7.2 billion a year earlier and included $6.8 billion in cash transfers from the CPP during the year. Equities earned $316 million in fiscal 2002 for a 3.4% return, compared with an $845 million investment loss in the previous year for a negative 9.4% return. The fiscal 2002 return exceeded the total portfolio benchmark of 2.4%.

In the first half of the year, equity returns were negative while fixed-income returns were positive. During the second half, however, equity returns were positive while fixed-income returns turned negative in the fourth quarter. Equities rose from 14% of total assets available to the Canada Pension Plan at the start of the year to 27% by year end. The shift in the asset mix contributed approximately one percentage point to the consolidated return of 5.7%.

“Equities were highly volatile throughout the year,” said CPP Investment Board president and CEO, John MacNaughton. “A modest gain in the first quarter was followed by a $1.4 billion loss in the second quarter that was erased by a $1.4 billion gain in the third quarter as markets recovered after the events of September 11. In the fourth quarter we added a further $260 million.”

“Our view is that equity returns will continue below their historical levels over the next few years,” MacNaughton commented. “After that, they should return to past levels, which is why we are building equities as a long-term component of the total assets available to the Canada Pension Plan.”