Diversified pooled fund managers posted a median return of 2.9% before management fees in the second quarter (Q2) of 2018, according to the results of Toronto-based Morneau Shepell’s performance universe of pension managers’ pooled funds.
“Most stock markets delivered excellent results in the second quarter, generating positive pension fund returns. Canadian and U.S. equities did particularly well, with returns of 6.8% for the S&P/TSX [composite index] and 5.6% in Canadian dollars (C$) for the S&P 500 [composite index]. Emerging-market equities had a tough quarter, returning [a loss of] 6% in Canadian dollars. Bond returns were modest in the second quarter, at about 0.5% for the market as a whole,” said Jean Bergeron, vice president responsible for Morneau Shepell’s asset- and risk-Management consulting team, in a statement.
“With returns well above the increase in actuarial liability, pension fund financial positions on a solvency basis improved for the second quarter of 2018. The solvency ratio for an average pension plan has improved by about 1.3 to 1.9% since the beginning of the year,” he added.
On average, the diversified pooled fund managers’ median return of 2.9% was equal to the benchmark portfolio — with an allocation of 55% in equities and 45% in fixed-income — that many pension funds use.
Pension fund managers obtained a median return of 0.5% on bonds (universe mandate), which was equal to the benchmark index, in Q2.
Long-term bonds posted a return of 0.9%, while the return for medium-term bonds was 0.2% and for short-term bonds 0.3%. High-yield bonds posted 1.3%, while real return bonds provided a 2% return.
The median return for Canadian equity managers in Q2 was 6.2%, which was 0.6% lower than the 6.8% achieved by the S&P/TSX composite index.
During the same period, the S&P/TSX small-cap index rose by 6.6% whereas the S&P/TSX completion index, representing mid-cap stocks, registered an increase of 5.8%, while the large-cap S&P/TSX 60 index posted growth of 7.1%.
Foreign equity managers’ median returns and appropriate benchmark indices in Q2 were as follows (all in C$ terms): 5.3% for U.S. equities vs 5.6% for the S&P 500 composite index; 0.2% for international equities vs 0.8% for the MSCI EAFE index; 3% for global equities vs 3.8% for the MSCI world index; a loss of 5.1% for emerging-markets equities vs a loss of 6% for the MSCI emerging-markets index.
Morneau Shepell’s performance universe covers about 336 pooled funds managed by almost 51 investment-management firms. The pooled funds included in the universe have a market value of more than $268 billion.
The results of Morneau Shepell’s study are based on the returns provided by leading portfolio managers, ranging from independent investment-management firms to insurance companies, trust companies and financial services institutions. The returns are calculated before deduction of management fees.