Canadian equities lifted DB pension returns in 2016

Canadian defined benefit pension plans closed out 2016 with an annual return of 6.8%, up from 5.4% in 2015, according to the $650-billion RBC Investor & Treasury Services All Plan Universe.

“Against a challenging economic and market backdrop at the outset of 2016, Canadian pension plans generated an impressive overall performance, with three consecutive quarters in the black,” says James Rausch, head of client coverage, Canada, for RBC Investor & Treasury Services. That culminated in a 1.4% increase in returns in 2016 compared to 2015, he adds.

Despite global volatility, RBC says pension plan returns were boosted by Canadian equities; they returned 5.7% in Q4 2016 and ended the year with a 21.9% annual return–slightly higher than the TSX Composite Index’s Q4 2016 return of 4.5% and 21.1% annual return.

Canada’s three largest sectors (energy, materials and financials) posted strong results during 2016, helping lift returns.

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Meanwhile, domestic fixed income assets took a hit in the fourth quarter of 2016, posting a decline of -3.4%, compared to a Q3 2016 gain of 1.6%. However, they finished the year in the black with a 2.4% annual return. RBC says the interest rate hike by the U.S. Federal Reserve and global monetary policy outlooks contributed to the fourth-quarter dip.

Read: Canada must focus on jobs and trade, says growth council

Global view

Global equities remained under pressure for much of 2016. They returned 3% in Q4 2016, down from 6.7% in Q3 2016. Their 2016 annual return sits at 4.4%, compared to 18.9% in 2015. For its part, the MSCI World Index posted a 3.9% return in Q4 2016 versus 6.1% in Q3.

Looking ahead , RBC calls for continued uncertainty. That includes the potential for interest rate hikes that may impact returns in 2017.

Financial markets will continue to adjust to the Trump administration as his economic policies are unveiled throughout the year as well as developments stemming from post-referendum U.K. and China.

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