Equity returns propel Canadian pensions: RBC

Global equity and real estate returns boosted Canadian pensions in Q4 2012, says the latest survey from RBC Investor Services.

Within the RBC Investor & Treasury Services All Plan universe, for instance, Canadian defined benefit pensions gained 2.5% in the quarter ending December 31, 2012. The median 2012 return for Canadian DB plans was 9.4%.

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“With overall 2012 returns approaching double digits, the country’s defined benefit pension plans [were less stressed] even [though they posted] only modest returns in the fourth quarter,” says Scott MacDonald, head of Pensions, Insurance, and Sovereign Wealth Strategy for RBC Investor Services.

He adds, “Continued stimulus by central banks in Europe, Japan and the U.S. offered hope for the global economy, while here in Canada lower global demand for commodities dampened Canadian equity returns. Other contributing sectors finished the year strong, helping Canadian equity performance for the quarter to remain positive.”

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Canadian equities returned 1.7% in the fourth quarter, bringing full year S&P/TSX performance up to 7.2%. Also, eight out of ten sectors in the S&P/TSX Composite had positive gains in Q4 2012, with consumer staples and information technology up 9.2% and 7.3% respectively.

Financials continued to be a primary Canadian equity driver as the sector rose 6.3% in the quarter, ending the year up 17.6%.

Canadian pensions’ home equity holdings returned 3.1% for the quarter, outperforming the S&P/TSX Composite by 1.4%. They were underweight in materials and slightly overweight in consumer staples and information technology.

Despite concerns over the European crisis, the U.S. election and weakening corporate earnings growth, Canadian dollar returns for the MSCI World was 3.7% for the quarter and 13.3% on the year. Canadian pensions outperformed the benchmark MSCI World index by 0.8% at the end of the year.

The real estate asset class also gave Canadian pensions a lift, delivering double-digit returns in 2012.

Canadian DB plans matched the benchmark DEX Universe Bond Index, returning 0.3% for the fourth quarter but were able to outperform the benchmark on the year by 0.9%.

MacDonald adds, “Within the DEX Universe index, the corporate segment continued to outperform the government segment as managers were confident enough to take on additional risk for the potential yield.”

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