In addition to the myriad crises witnessed over the past 13 months, 2008 now has the dubious distinction of being the worst year on record for Canadian pension plans, as assets dropped 7% in the fourth quarter alone, according to RBC Dexia Investor Services.
The Q4 fall added the finishing touch to a 15.9% decline for the year.
“The last two quarters of 2008 were particularly brutal, but the pull-back actually started in the summer of 2007,” says Don McDougall, director of advisory services for RBC Dexia. “The dismal outcome for 2008 eclipses the previous annual record set in 1974 when pension portfolios shrank by 12.7%.”
While pension plans took a beating, the hardest hit asset class was domestic equity as the S&P TSX Composite index lost 33% over the year.
“Pensions fared a little better, outperforming the index by 1.5% on the strength of their holdings in consumer staples, the only sector to remain unscathed,” says McDougall. All other sectors shed between 21.1% and 48.4% from the beginning of the year, while financials, the last holdouts, tumbled 29.6% in the final quarter.
Global equities lost 27.8% for the year, in Canadian dollar terms, lagging the MSCI World Index by 1.9%. “Most pension funds remained under-exposed to the US market,” reported McDougall.
Related Stories |
He explained that the record losses incurred by pension plans should be taken in context, as there is no comparable time period to measure against.
“Pension performance data goes back only to the early 1960’s,” he says. “Before that, we would have to look to the Great Depression of 1929-32, but figures are sketchy. Pensions were uncommon in that era and, in any case, equity exposure would have been quite limited.”
To comment on this story, email jody.white@rci.rogers.com.