Canadian defined benefit (DB) pensions gained a median 4.4% in the second quarter as equities markets continued to rise amid the rollout of Covid-19 vaccines and the reopening of the global economy, according to a report from RBC Investor & Treasury Services.
For the first half of the year, Canadian DB pension plans were up a median 3.5% after posting a -0.2% median return in Q1. Since the sell-off in the first quarter of 2020, Canadian DB plans have generated a 22.6% cumulative return on their assets, the report said.
“This reflects the market’s optimism over the sooner-than-expected reopening of the global economy due to the increased availability and uptake of vaccines in the developed world,” said David Linds, managing director and head of asset servicing, Canada, with RBC Investor & Treasury Services.
However, Canadian DB plans could face headwinds “from the growing threat of a Covid resurgence as the Delta variant spreads,” Linds said. “Managing and preparing for this possibility and remaining vigilant to other risks, such as high valuations in equity markets, mounting structural versus transitory inflationary pressures and ongoing geopolitical tensions will remain a priority of Canadian DB plans for the remainder of 2021.”
Canadian equities outpaced their global counterparts, returning 7.9% to Canadian DB plan holders in the second quarter and 17.3% year to date, the report said. That compared to the 8.5% returned by the S&P/TSX Composite Index benchmark in Q2 driven by a solid performance in the information technology (+23%), energy (+13.9%) and financials (+8.3%) sectors.
Meanwhile, Canadian DB plans’ foreign equities returned 5.2% in Q2, with growth stocks outperforming value stocks.
Fixed income returns were positive for Canadian DB plans in the second quarter, returning 3%, but were down -5.0% year to date at the end of June. Comments from central banks emphasizing the transitory nature of recent high inflation readings reassured bond investors, pushing long-term yields lower, the report said.