First quarter returns for Canadian pension plans continued the upward movement observed since the second quarter of 2003, according to Mercer Investment Consulting’s quarterly survey of pooled fund performance.

While the market rally was calmer than at the end of last year, all asset classes achieved positive returns in the first quarter of 2004 allowing Canadian pension plans to breathe a small sigh of relief.

“The major equity market indices posted very solid returns in the first two months of the year with a modest reversal in March. Managers of discretionary balanced pooled funds, stimulated by these equity markets along with bond markets, posted a median return of 3.9% for the quarter,” said Marcel Larochelle, practice leader for Mercer Investment Consulting in Canada, in a news release.

Despite the positive results, the equity markets bore little impact on pension plan solvency. This is reflected in the Mercer Canadian Pension Health Index, a measure of the impact of capital markets on the financial position of Canadian pension plans, which remained unchanged near 90% at the end of March 2004.

International equities were the top performing asset class during the quarter. The MSCI EAFE index returned 6.2% over the quarter, in Canadian dollar terms. The median international equity manager underperformed the index with a return of 5.4% during the quarter.

With a median return of 4.6% in the quarter, Canadian equity managers slightly underperformed the S&P/TSX Composite which posted a return of 4.9% for the period, led by strong performance in the information technology and financial sectors.

Within the Canadian equity universe, the small cap segment returned 8% this quarter as measured by the BMO Nesbitt Burns Small Cap Index. Investment managers outperformed the index with a median return of 8.4%.

U.S. equities returned 3.4% in the first quarter of 2004, as shown by the S&P 500 (in Canadian dollars). The median U.S. equity manager virtually matched this with a return of 3.7%.

The median Canadian bond manager matched the Scotia Capital Universe index this quarter with a return of 3.1%. The Scotia Capital Long Term index returned 3.4%.

“Currency movements were mitigated during the quarter in comparison to the over 20% appreciation in 2003. The Canadian dollar marginally depreciated, boosting foreign equity returns for Canadian investors during the three month period,” said Larochelle.