Canadian defined benefit plans' returns were flat for the second quarter, down from 4.4% the previous quarter, according to a report from RBC Investor & Treasury Services.
The Canadian bond market had the largest three-month decline since 1994, losing 2.5% for the quarter and down 1.7% in the six months to June 30. The decline was driven by the increase in interest rates in June. Long-duration bonds fared even worse as the DEX Long Term Bond index was down 4.6% for the quarter.
“Market volatility returned in June following the Fed's statements regarding its commitment to quantitative easing,” said Scott MacDonald, head of the pension segment development for RBC Investor & Treasury Services, in a news release. “While all DB plans benefit from rising long-term bond yields as pension liabilities are reduced, those with risk mitigating liability-driven investment strategies were the hardest hit during the quarter.”
Canadian equity was down for the quarter as well, as pension plans lost 1.2%. The S&P/TSX Composite index that was down 4.1%, while foreign equity rose 4.7% for the quarter on the strength of U.S. equity markets. The MSCI World index was up 4.5% for the quarter.
According to RBC, the Canadian dollar's weakness against most major currencies benefited plans as foreign equities are up 15.4% in Canadian dollar terms year-to-date.
RBC's C$460 billion (US$447 billion) universe, which consists of public and corporate plans, returned 4.5% year-to-date. The report does not analyze the liability side of the plans, said spokesman Jason Graham.