Vestcor Investment Management Corp. has posted a 6.16 per cent overall investment return for the year ending Dec. 31, 2016.
Formerly known as the New Brunswick Investment Management Corp., it achieved a gross rate of return of 6.53 per cent and a real return of 5.03 per cent, according to its inaugural annual report. The corporation provides investment management services for the province’s public service pension plan, the teachers’ pension plan and six other public sector funds.
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Vestcor’s long-term annualized real return exceeded these clients’ funding requirements at 5.29 per cent. “Our discretionary investment management program created returns that exceeded the portfolio benchmarks established by our clients by 1.21 per cent during the year,” said John Sinclair, president and chief executive officer at Vestcor Group of Companies, in a news release.
According to the annual report, the corporation remains cautious about investment risk in the form of equities and credit securities in the short term despite positive market sentiment. Instead, it’s focused on producing modest investment returns in the long term, noted Sinclair.
Vestcor exceeded benchmarks for all of its fixed-income portfolios, including short-term assets, nominal bonds, corporate bonds, global fixed income, long-term bonds and real return bonds, though returns still ranged from one to three per cent. Corporate bonds produced the highest return at 3.91 per cent, while short-term assets produced the lowest at 1.05 per cent.
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Bond yields dropped during the first half of 2016 because of perceived risk from global factors, such as the instability of the European bank, rising concerns about Asian debt and Britain’s decision to leave the European Union, according to the report.
However, it noted fixed-income yields eventually recovered when the market realized it would take Britain some time to leave the EU, and learned the U.S. Federal Reserve was making progress in hiking rates. As well, the election of U.S. President Donald Trump in November 2016 gave yields an extra boost.
As for the Canadian economy, the report noted Canada paled in performance compared to the United States because oil prices in 2016 experienced a slow recovery and capital spending plans on oil projects stalled due to the forest fires in Fort McMurray, Alta.
Vestcor allocates its public equity holdings in either standard market capitalization portfolios or internally managed low volatility equity portfolios. Canadian equities produced the best returns in both portfolios, at 20.5 per cent and 16.4 per cent, respectively. International equities returned 2.53 per cent and 1.93 per cent, respectively.
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The report noted that while geopolitical events increased volatility, investors still received overall modest returns from equities in 2016. “Much of this positive return was earned in particular in the aftermath of the November U.S. presidential elections, which resulted in a significant ‘risk-on’ rally in global business cycle sensitive assets such as equities.”
The corporation also fared well in alternative investments. It exceeded benchmarks for all portfolios with real estate receiving the highest return at 11.31 per cent, while absolute-return strategies returned 5.12 per cent.
The company was established in 2016 through provincial legislation and currently manages $16 billion of assets on behalf of eight public sector pension funds. It also provides management and administration services for 11 public sector pension plans and five employee benefits plans.
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