The average Canadian defined benefit pension plan returned 5.1 per cent during the third quarter of 2024, an increase from 1.1 per cent in the previous quarter, according to a new report by RBC Investor Services.
It found Canadian DB plans achieved an average return of 9.6 per cent on a year-to-date basis. The growth in returns during the quarter was credited to the performance of Canadian equities and fixed income assets.
Read: Average Canadian DB pension plan returns 1.1% in Q2 2024: reports
Domestic stocks (9.6 per cent) outperformed global equities (5.5 per cent) during the quarter, while the TSX composite index returned 10.5 per cent due to a heavy weight in financials (17 per cent) and materials (12.2 per cent).
Canadian fixed income (4.9 per cent) slightly overperformed the FTSE Canada universe bond index (4.7 per cent). Fixed income assets, the report noted, continued to react favourably to the Bank of Canada’s consecutive interest rates cuts in 2024.
In a press release, Isabelle Tremblay, asset owner segment lead at RBC Investor Services, said despite the improved returns for Canadian DB plans, there’s an ongoing need for diversification and proactive risk management in the market.
“With the additional 50 basis points Bank of Canada rate reduction announced in October and the U.S. presidential election on the horizon, plan managers continue to adapt their strategies for the evolving pension landscape.”
Read: Average Canadian DB pension plan returns 0.4% in September: report
A separate report by Northern Trust Corp. found the median Canadian pension plan returned 4.8 per cent in the third quarter of 2024. The Northern Trust Canada Universe indicated the average Canadian pension plan secured a return of 8.4 per cent on a year-to-date basis as at Sept. 30.
U.S. equities, as measured by the S&P 500 index, provided a 4.5 per cent return, while international developed (six per cent) and emerging (7.5 per cent) markets also offered strong returns to Canadian institutional investors.
The report noted declining inflation across most developed regions allowed central banks to explore less restrictive tones with their policies.
“As major central banks around the globe seek a path to neutrality, Canadian pension plans remained in solid financial form supported by healthy solvency ratios,” said Katie Pries, president and chief executive officer at Northern Trust Canada, in a press release. “Throughout the interest rate journey, plan sponsors exercised vigilance through the lens of balancing risks and adopting sound strategies that position plan investments for a successful and sustainable retirement future.”
Read: Canadian institutional investors allocating 3% to domestic equities: report