DB pensions gain strength

Pension assets rose for a third successive quarter as global financial markets have continued to climb in 2014, shows a survey from RBC Investor & Treasury Services.

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Within the $520 billion RBC Investor & Treasury Services All Plan universe (the industry’s most comprehensive universe of Canadian pension plans) defined benefit (DB) pension assets returned 4.8% during the three months ending March 31, 2014, bringing 12-month totals to 14.8%.

“Strong equity gains domestically and a weaker Canadian dollar helped boost foreign holdings, but lower long-term bond yields will have increased most plan liabilities,” says Scott MacDonald, managing director, pensions for RBC Investor & Treasury Services.

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Canadian stocks were the top performing asset class, rising 5.8% for the quarter and 21.2% for the year ending March 2014. “Advances were broad across all sectors, led by the materials group and gold stocks in particular which rebounded off last year’s low,” says MacDonald. “Pensions maintained their underexposure to the sector and accordingly lagged the S&P/TSX Composite Index by 0.3% during the quarter but maintained their 5.2% outperformance over the previous 12 months.”

Foreign equities moved higher for a seventh successive quarter, advancing 5.3% in Canadian dollar terms against 5.2% for the MSCI World Index. “Currency gains accounted for the bulk of the return this quarter, as the Canadian dollar continued to slide against most major currencies,” adds MacDonald. “Over the last year, the Canadian dollar has lost 8% against the US dollar, 14.2% against the Euro and 16.2% against the British pound.”

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Bonds also contributed to Canadian pension plan asset growth, earning 3.1% in the quarter thanks to an early January rally. “Strength came from the longer end of the curve, with FTSE/TMX Long Term bonds rising 5.1% and FTSE/TMX Real Return Bonds up 6.1%,” says MacDonald.

Staff

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