Strong global equity markets helped Canadian defined benefit (DB) pension plans generate solid returns in 2017, according to data published Tuesday from RBC Investor & Treasury Services.
Canadian DB plans returned 4.4% in the fourth quarter (Q4), pushing their annual return to 9.7% for 2017.
Global equities led the way in Q4, with a 6.1% gain, thanks to a combination of low interest rates, a robust global economy, and improving labour markets.
Indeed, for the full year, the annual return on global equities was 16.6%, outpacing Canadian equities, which returned 9%, and the 3.8% return by Canadian fixed-income securities, RBC reports.
“2017 was a strong year for Canadian pension plans, with year-over-year returns, despite a backdrop of ongoing global economic and political volatility,” says James Rausch, head of client coverage, Canada, at RBC Investor & Treasury Services, in a statement.
“The Bank of Canada rate hikes, the first in seven years, reverberated through the bond market, while the energy and commodity sectors continued to fluctuate and impact Canadian markets. Meanwhile, global equities continued to provide strong and stable returns,” he adds. “Fund managers will continue to pay close attention to these strong global returns and geopolitical developments to maintain a diversified portfolio across asset sectors and classes in the year ahead.”
The main concern for the 2018 is low interest rates, according to poll of Canadian DB pension plan sponsors by RBC Investor & Treasury Services. The poll found that 40% of respondents cite rates at their top worry.
The poll also found:
- the median funding level for Canadian DB pension plans is 96%;
- one-quarter of respondents are more than 100% funded; and
- only 5% of respondents said their funding levels are under 70%.