Canada’s institutional pension fund managers all posted positive returns for the quarter ending June 30, 2003, according to a survey released today, leaving behind two years of market decline.

The quarterly survey by BENCHMARK(R), the investment analytics arm of RBC Global Services, shows that buoyed by the recent rally in both Canadian stocks and bonds, even the weakest performing institutional balanced fund manager gained more than 4.4%.

But the survey notes that while the second-quarter results are encouraging, many pension funds are still not doing well: the average Canadian equity return for the 12 months ended June 30 was -0.9%.

“Nonetheless,” said Fred Francis, vice-president, Value-Added Products, RBC Global Services, “this is a dramatic improvement, remembering that from April 2002 to March 2003, the median Canadian equity return, within the BENCHMARK balanced funds universe, shrank by an alarming 16.6%.”

According to the survey, “balanced” funds have performed erratically during the past decade: five years have annual returns of more than 13% and five years are less than 5%. “There doesn’t seem to be any in between,” says Francis. “It’s surprising. You’d expect more consistent returns given the size and diversification of these portfolios.”

The survey also shows that within the fixed income sector, assets have been shifting into shorter-term instruments. With many managers cautiously on the sidelines, the median allocation to cash has swelled to almost 5%, with some pension portfolios holding up to 10%.

Typically, managers move to cash when they are concerned about the prospects for good returns in other sectors. The BENCHMARK data also reveals that, over the past five years, relaxed Canadian government restrictions on foreign investment have not helped pension fund performance. Despite a respectable median return of 8.6% in the most recent quarter, Francis notes that, “Non-Canadian stocks have actually been a ‘net drag’ on pension fund returns. Precipitous market declines in the past three years have erased the solid gains of prior years. In fact, you have to go back to 1997 before the compounded return is positive for this sector.”

The survey results are based on the RBC Global Services BENCHMARK universe of more than 2,200 institutional portfolios with total assets exceeding $250 billion. All returns listed are gross of fees.