Flat Q3 leaves pension returns down big in 2022: RBC

Pension fund returns were more or less flat in the third quarter, leaving returns down by double digits in the year so far, according to new data from RBC Investor & Treasury Services.

Defined benefit plans that are part of the RBC Investor & Treasury Services plan universe generated a return of 0.5% in the third quarter, the firm reported. Returns for the year to date remain down by -13.7%.

The modest positive return in Q3 came on the strength of a 1.1% gain in pension funds’ fixed-income holdings, whereas equities were negative.

“As central banks around the world continued to aggressively raise short-term interest rates to stem inflation, long-term bonds outperformed their short-term counterparts for the quarter,” the firm reported in a release.

Canadian equities returned -1.2% in the third quarter, and foreign equities were down 1.1%.

“Pensions experienced a temporary reprieve in July as the global markets rallied sharply,” said Niki Zaphiratos, managing director at RBC I&TS, in a release.

“This rather short-lived change in market sentiment was based mostly on the assumption that the central banks’ actions would help control inflationary pressures. We then saw losses over the rest of the quarter, primarily due to concerns that additional aggressive measures would be taken by the central banks.”

Looking ahead, Zaphiratos noted that markets and pension managers are facing various headwinds, including new Covid-19 variants, more central bank interest rate hikes and quantitative tightening, and geopolitical risks such as the Russo-Ukrainian war and U.S.-China tensions.

“Economic uncertainty remains high and pension fund managers are preparing for ongoing market volatility as the weight of these pressures continues to be felt,” she said.

Staff

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