The surging Canadian dollar was bad news for balanced pension funds in the third quarter. Currency losses on foreign investments largely erased market gains at home, according to a survey just released by Benchmark the investment analytics arm of RBC Global Services.

Within the $250 billion Benchmark universe, for a second consecutive quarter, pension funds barely stayed in the black. The three months ending September 2004 returned a meagre 0.3%, nudging year-to-date totals up to 4.7%.

“Most Canadian pension plans do not hedge foreign exchange exposure and were walloped by our strengthening dollar this quarter,” said Don McDougall, director, Benchmark, in a release. “Foreign equities shrank 6.8% in Canadian dollar terms — and currency translation was responsible for more than three-quarters of this decline.”

Domestic assets offset the global losses. Despite climbing interest rates, fixed-income portfolios rebounded after a weak second quarter, gaining 2.8%. Higher commodity prices translated into healthy gains for energy and materials stocks, contributing to a 1.9% rise in Canadian equities over the period.

“Active managers were pretty much in line with the markets this quarter, but overall this year have outperformed in all major sectors, adding considerable value to Canadian pension plans,” said McDougall.