Canadian DB Pension Plans Return -6.4% During Heightened Volatility in Q1: Report

The median Canadian defined benefit pension plan experienced a pullback in investment returns during the first quarter of 2022, returning negative 6.4 per cent as markets entered a heightened period of uncertainty, according to new a new report by Northern Trust Canada.

The report, which tracks the performance of Canadian DB plans that subscribe to Northern Trust’s asset service offerings, cited several factors for the resurgences of volatility in the first quarter of the year, including the Russian invasion of Ukraine, which ignited soaring energy and commodity prices and supply constraints that further fuelled inflationary concerns.

As a number of central banks responded with monetary tightening during the quarter, the Canadian equity market held up well with the S&P/TSX composite index rising 3.8 per cent, especially compared to its global peer indices, noted the report. For example, U.S. equities, as measured by the S&P 500 index, returned negative 5.7 per cent; international developed markets, as measured by the MSCI EAFE index, returned negative 6.8 per cent; and the MSCI emerging markets index returned negative eight per cent.

The report also noted the Canadian bond market felt the wave of rising yields and a recent inversion of the U.S. yield curve, as bonds posted negative returns for the period. The Canadian fixed income market, as measured by the FTSE Canada universe bond index, declined seven per cent for the quarter. 

READ: Elon Musk Agrees to Buy Twitter

“The economic headwinds experienced during the last two years of the coronavirus pandemic have abated despite a recent uptick in cases,” said Katie Pries, president and chief executive officer of Northern Trust Canada, in a press release. “However, markets faced new challenges this quarter with geopolitical friction and supply chain challenges on the rise. These mounting tensions cast a new level of uncertainty across global markets, which rippled across Canadian pension plan returns as witnessed by the sharp decline in the median return for the period.

“At the same time, rising interest rates have provided some reprieve to pension plan funding ratios. I am confident Canadian pension plans with sound governance and risk management practices can weather this market turmoil and emerge stronger through this cycle.”