Canadian pension fund returns lagged their targets amid the market fallout from the Covid-19 outbreak, says Fitch Ratings.

In a new report, the rating agency said that the latest results from large Canadian pension funds reveal that pension funds underperformed relative to their return targets in early 2020, when markets were beset by the pandemic.

Fitch reported that the pandemic exposed “pension funds’ outsized positions in higher risk sectors, notably travel, hospitality, retail and energy…”

However, Fitch also noted that pensions had even greater exposure to the financial sector during the global financial crisis, which caused average investment losses of 18% from 2008 to 2009.

Fitch said it does not expect funds to suffer the same level of losses due to the Covid-19 crisis.

“Long-term fund performance will depend on asset mix, which is largely influenced by a plan’s maturity and risk appetite, future market volatility and the speed and path of economic recovery,” the rating agency said.

Fitch also noted that longer-term performance could be bolstered by pension funds’ ability to capitalize on investment opportunities that emerge in the months ahead.

“That said, funds face a competitive investment environment, which may make it more challenging to identify attractive investments at scale,” the rating agency cautioned.

Nevertheless, Canadian pension funds maintain strong credit profiles, Fitch said, due to “their long-term investment strategies and time horizons that afford them flexibility to work through troubled investments instead of being forced sellers…”

Canadian pension funds also enjoy strong asset and liquidity levels, solid investment track records and relatively stable interest and dividend income, Fitch added.