Canadian pension plans should see a better year head, reports Mercer.
According to the consulting firm’s most recent Fearless Forecast survey, investment managers anticipate that 2012 will bring modest economic growth, but solid equity returns. Specifically, those surveyed said they predict:
- slow growth among Canadian and global economies due to ongoing uncertainty in the eurozone and a potential economic slowdown in China;
- global stock markets will enjoy a solid year; and
- yields on long-term and AAA/AA corporate bonds will increase.
If the predictions are correct, plan sponsors should see an improvement in their funded positions, says Dave Makarchuk, growth strategist with Mercer.
“However,” reminds Scott Clausen, retirement, risk and finance professional leader with Mercer, “most pension plans experienced significant losses in 2011 and…the experience of the past year again points to the importance of an organization actively monitoring and managing its pension risk.”
Managers are forecasting that the strong fourth quarter performance of 2011 will extend further into 2012; global equities are expected to return 7%, led by U.S. equities at 8%, Canada at 7% and developed Europe, Asia and far east and emerging markets at approximately 6%.
The Canadian bond markets enjoyed strong performance in 2011 as bond markets rallied on the belief that the economic recovery was losing momentum, in part due to the European debt crisis. Investment managers anticipate a rise in interest rates that will end the “bull bond market” and result in fixed income being one of the least attractive asset classes in 2012. Managers anticipate long-term bonds to deliver a return of only 0.4% in 2012; however, slightly higher performance is forecasted for the broad Canadian and global bond markets, at 2% and 3%, respectively.
Other key forecasts for 2012
- Energy and materials are forecast to be the best performing sectors while utilities and telecommunications are expected to be the poorest.
- Due to heightened volatility, managers anticipate that income-generating quality stocks will outperform and that allocations to low volatility mandates will increase.
- Managers expect that allocations to duration-matched assets will increase while allocations to Canadian equities will decrease, so as to take advantage of broader investment opportunities in the integrated global economy.
- The ongoing debt situation in Europe and a potential economic slowdown in China are cited as the top two risks in 2012 that could exert a significant drag on the global economy.