Global market volatility in early 2016 contributed to a 0.03% decline in Canadian defined benefit pension plans’ returns in Q1, according to the RBC Investor & Treasury Services All Plan Universe. The loss comes on the heels of a 3.1% Q4 2015 return and annual return of 5.4% in 2015.
Global equities reversed their Q4 2015 gains of 8.9%, achieving returns of -6.2% in Q1, slightly better than the -7.2% loss experienced by the MSCI World Index during the quarter, but a significant swing into negative territory nonetheless. Meanwhile, their Canadian counterparts recovered ground, posting Q1 returns of 4.6% in Q1 versus -0.5% in Q4 2015.
Despite posting strong results, equity markets in Europe, Japan and China all experienced weakness in their respective currencies and overall global equity returns of -6.2% weighed on Canadian defined benefit plans in Q1 2016.
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As concerns around a potential near-term tightening in Canadian monetary policy eased in Q1 2016, Canadian bonds returned 1.8% for defined benefit plans, up from Q4 2015 returns of 1.1% and slightly better than the FTSE TMX Universe Canadian Bond Index Q1 return of 1.4%.
The domestic currency market also experienced a rebound in Q1 2016 with the Canadian dollar recovering from January lows to appreciate 7% against the U.S. dollar by the end of March.
Interest rate expectations, appreciating oil prices, improved financial conditions and stronger than expected Canadian economic growth helped fuel the rally.
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