Pension plans gain in 2013

Canadian pension plans posted solid gains in 2013 as global equity markets continued to surge during the fourth quarter, says RBC Investor & Treasury Services.

Within the $460 billion RBC Investor & Treasury Services All Plan universe—the industry’s most comprehensive representation of Canadian pension plans—defined benefit pension assets returned 6.1% during the three months ending Dec. 31, bringing annual gains to 14.2%.

Read: Understanding the pension income tax credit “Strong equity gains and a weaker Canadian dollar led to an increase in assets, while higher long term bond yields reduced most plan liabilities, which will please sponsors,” says Scott MacDonald, managing director, pensions for RBC Investor & Treasury Services.

Foreign equity was the top performing asset class, rising 11.5% in the fourth quarter while bringing full-year results up 35.8%— ahead of the MSCI World Index by 0.6%. “Currency gains accounted for approximately 20% of the returns, but strength was spread across the majority of developed markets. The U.S. contributed the most, with the S&P 500 up 41.3%, having its best calendar year result in Canadian dollar terms since 1958,” adds MacDonald. Read: Canada warms to goals-based investing

Domestic stocks also helped, advancing 19.4% for the year, but were held back by the materials sector which continued to show weakness in the fourth quarter and subsequently shed close to 30% of its value since the beginning of 2013. “2013 was a really good year for active Canadian equity management,” says MacDonald. “Most pensions maintained an underexposure to the sector and consequently outperformed the S&P/TSX Composite Index by 6.4% during the year.”

Canadian pensions, however, had their largest annual fixed-income decline since 1994, losing 1.3% over the last 12 months. “The weakness spread across the market, but inflation-sensitive longer-duration bonds were the most affected as the DEX Real Return Bond Index declined 13.1% while DEX Long Term Bonds were down 6.2%,” notes MacDonald. “In this environment, the risk mitigating liability driven strategies were the hardest hit on the asset side.”

Read: Non-spouse beneficiaries of registered plans

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.