Managers of discretionary pooled funds had a small positive median return of 0.3% during the second quarter of 2004, according to the quarterly survey of pooled fund performance by Mercer Investment Consulting.

According to the survey, the positive returns for all equity asset classes were greatly offset by negative returns on bonds, resulting from an increase in interest rates.

“Despite negative bond returns, the picture for pension plans so far this year is positive. After six months, the median fund is posting a return of 4.1%. This return, combined with the reduction of solvency liabilities resulting from the increase in interest rates, means that the overall health of a typical Canadian pension fund has improved slightly since the beginning of the year,” said Marcel Larochelle, practice leader for Mercer Investment Consulting in Canada, in a news release.

This healthier 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 increased slightly to 91% from 90% in April and from a low of 82% in the second quarter of 2003.

The survey found that U.S. equities were the best performing asset class, with the S&P 500 returning 3.8% in Canadian dollars over the second quarter. The median manager returned 3.4%, underperforming the index by 0.4% over this period.

The Canadian equity market was flat over the second quarter as shown by the S&P/TSX Composite index, but the median Canadian equity manager outperformed the index by 0.9% during this period.

Canadian bonds were the worst performing group, with the Scotia Capital Universe index returning -1.9%, and managers underperforming the index by 0.1%. The Scotia Capital Long Term Overall index returned -2.9% and real return bonds achieved a return of 1.5% over the quarter.