Q4 sinks Canadian fund returns for 2018

Canadian corporate and public pension plans in the RBC Investor & Treasury Services universe returned a gross -0.7% in 2018, after fourth-quarter negative returns reversed the gains of the first nine months of the year, a news release from RBC I&T on Tuesday states.

Plans in the universe, which has a combined C$650 billion ($496 billion) in assets, had returned 9.7% in 2017.

Returns for 2018 dipped into negative territory thanks to a fourth-quarter return of -3.5% after slightly positive gains in the prior three quarters: 0.1% in the third, 2.2% in the second and 0.2% in the first. The fourth quarter was the first with negative returns since the third quarter of 2015, when plans lost 2%.

Canadian equities suffered their second negative quarter in a row, returning -10.6% in the fourth quarter, spurred by declines in oil prices as well as interest rate increases. For the year, Canadian equities returned -8.9%, compared with 9% for calendar 2017. In the third quarter, Canadian equities had lost 0.3%.

Global equities also posted negative returns for the fourth quarter, with a gross return of -7.8% and also dropped 1.3% for the year. According to the news release, Canadian dollar weakness tempered some local currency losses in that asset class for unhedged plans.

Canadian fixed income, meanwhile, moved to positive territory for the fourth quarter, returning 1.8%, compared with the previous quarter's return of -1.5%.

"Geopolitical and economic uncertainty reverberated through the market all year. Trade wars, rate hikes, oil prices and Brexit helped contribute to lower earnings expectations, which drove returns sharply lower in Q4 and for the year. With the Fed pausing on rate hikes as well as trade negotiations between the U.S. and China showing progress in January, markets have started the year strong but investors need to remain vigilant as we are approaching the end of the market cycle and volatility is unlikely to go away," Ryan Silva, director, head of pension and insurance segments, global client coverage, said in the release.