Canadian defined benefit plans within the RBC Investor Services All Plan Universe delivered a median return of 8.2% in the fourth quarter of 2023, pushing the full-year median return to 9.1%, a stark reversal from the -10.3% median return recorded in 2022.
Marijana Jovanovic, managing director, head of product development at RBCIS, noted that the fourth-quarter median return marked the third-best such quarterly performance in more than two decades, surpassed only by the second quarter of 2020 and second quarter 2009, said a news release Jan. 31.
"Positive returns in both fixed income and equity markets during Q4 were driven by investor optimism over potential near-term interest-rate cuts amid decreasing inflationary pressures," she said.
In the fourth quarter of 2022, the median return for the DB plans was 3.8%.
During the fourth quarter of 2023, global equities held by the pension plans delivered a 7.9% return and a 16.3% annual return, trailing the MSCI World index's figures of 8.7% and 20.5%, respectively.
Canadian stocks held by the DB plans returned 7.5% in the fourth quarter and 10.9% for the year, compared with 8.1% and 11.8%, respectively, for the TSX Composite index.
The discrepancy between global and Canadian equities' annual performance was largely attributed to the fact that the Canadian market has "lower exposure to the in-favor growth-style stocks," the news release said.
Canadian fixed-income securities held by the plans benefited from declining yields and tightening credit spreads. For the fourth quarter, they had a strong return of 10.9% and a 7.8% return for the full year, outperforming the FTSE Canada Universe Bond index, which had comparable figures of 8.3% and 6.7%, respectively.
Looking at the near term, Jovanovic said "potential future inflation arising from the Red Sea crisis introduces uncertainties impacting global trade and supply chains," and adding that "geopolitical tensions, notably conflicts in the Middle East and Ukraine are also under consideration as plan managers adapt their strategies to navigate this environment."