Canadian defined benefit pension plans in the RBC Investor Services universe delivered a median return of 0.8% in the second quarter of 2023, and a median return of 4.8% in the first half of the year, according to a study released Monday.
During the second quarter, RBC noted, foreign equities delivered a median return of 2.9%, making it the top-performing asset class in the peer universe. By comparison, the MSCI World index returned a net 4.5% in the second quarter.
However, RBC said, the strength of the Canadian dollar had a "softening effect" on the returns of pension plans invested in foreign equities. As a result, hedged pension plans outperformed their unhedged counterparts.
As in the first quarter, growth stocks far outpaced their value counterparts — the MSCI World Growth index gained a net 8% in the second quarter, while the comparable value index returned only a net 0.7%. Year-to-date, the growth index has surged a net 24.1%, well ahead of the 1.5% net return of the value index.
U.S. stocks also outperformed their international peers in the second quarter — as the S&P 500 index gained a net 6.3% while the MSCI EAFE index edged up a net 0.7%.
Canadian equities in the plan universe rose a median of 1.3%, slightly above the 1.1% net return of the TSX Composite index.
Canadian fixed-income assets in the plan universe returned a median of 0.3%, while the FTSE Canada Universe Bond index returned a net -0.7%.
"The analysis underscores the intricacies of the Canadian pension landscape during the (second quarter), prompting investors to remain vigilant in navigating the uncertain waters that lie ahead," said Marijana Jovanovic, head of product transformation at RBC Investor Services, in a release issued with the study. "While inflation has been trending favorably into (the second quarter) following July's rate adjustment, it's uncertain whether future interest rate increases are on the horizon."
Ms. Jovanovic added: "Geopolitical tensions, including U.S.-China relations and the ongoing situation in Ukraine, introduce complexity to market dynamics and pose risks for investors. Asset managers are diligently focusing on diversification and hedging strategies while maintaining a watchful eye on their portfolios to mitigate potential losses."
The All Plan Universe is a quarterly benchmark that tracks the performance and asset allocation of a cross-section of assets across Canadian defined benefit pension plans, RBC said in the release.
