The market volatility that swept through global equity markets in the third quarter had a severe impact on pension plans, according to RBC Dexia Investor Services.
The Canadian pension assets that RBC Dexia tracks fell 5.5% in the quarter ending Sept. 30, 2011, sinking year-to-date performance into negative territory at -3.2%.
“Ongoing uncertainty over Europe’s sovereign debt crisis, a U.S. downgrade and mounting fears of slower global economic growth drove pensions to their lowest quarterly result since the 2008 financial crisis,” said Don McDougall, director of advisory services for RBC Dexia.
European banks were among the hardest hit stocks, dragging the MSCI World index down nearly 10%. Overseas losses were partially mitigated by weakness in the Canadian dollar, which declined against most major currencies.
The S&P TSX Composite lost 12% in the quarter and 11.9% year-to-date, making Canadian equity the worst performing asset class for pension plans.
“The pull back actually started in April followed by six consecutive months of negative returns on Canadian stocks,” said McDougall. “Pensions trailed the S&P TSX Composite by 1.6% for both the quarter and nine months.”
Pension fund managers who sought refuge in the bond market early were rewarded, as the broad asset class gained 5.1% on the quarter, and 7.6% year-to-date. Long-term bonds, as measured by the DEX Long Term bond index, posted their best quarter in 20 years, with a gain of 9.8%.