Although equities markets hit new heights in the first quarter, the median return of Canadian defined benefit (DB) pension plans was negative as rising bond yields led to plummeting prices for fixed income securities.
According to the RBC Investor & Treasury Services All Plan Universe index, Canadian DB plans posted a median return of -0.2% in Q1, down from a median return of 5.4% in the fourth quarter. Fixed income assets held by DB pensions had a median return of -7.1%, down from 1.1% in Q4.
“As projections pointed to higher expected growth, investors readied themselves for mounting inflationary pressure,” RBC said in a release.
Canadian bonds posted losses across the board, with the FTSE TMX Universe Canadian Bond Index returning -5% in Q1. Long-term bonds had a worse showing, with the FTSE TMX Long Term index posting a loss of -10.7% in the quarter. The FTSE Short Term index, meanwhile, returned -0.6%.
Returns for most global equities — particularly value stocks — were positive, while growth stocks struggled. The MSCI World Value index returned 8.1%, while the MSCI World Growth index returned -1.1%.
Canadian stocks posted a robust return of 8.6%. The TSX Composite returned 8.1%, led by the energy (+20.3%) and financial (+13.9%) sectors, RBC reported.
In a statement, David Linds, managing director and head of asset servicing, Canada, RBC Investor & Treasury Services, said markets have priced in a positive economic recovery amid strong GDP forecasts and vaccine rollouts.
“However, plan sponsors should continue to be on guard for risk factors such as the emergence of potent Covid-19 variants and supply constraints in a highly competitive global vaccine market,” Linds said.