The median Canadian defined benefit pension plan’s investments declined 8.8 per cent during the second quarter of 2022, according to a new report by Northern Trust Canada.
The report draws from the Northern Trust Canada universe, which tracks the performance of Canadian DB plans. It also found the median plan’s investments were down 14.5 per cent on a year-to-date basis at the end of June.
The losses were attributed to the poor performance of equities and rising interest rates, according to a press release. “The most recent quarter served as a reminder of how rapidly markets can shift course,” said Katie Pries, president and chief executive officer of Northern Trust Canada. “We saw extreme market declines in the early days of the [coronavirus] pandemic and now we are experiencing it again in the face of changing monetary policy.”
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Pension plans with strong domestic and North American biases faced the most significant losses. During the second quarter, the S&P/TSX composite index fell 13.2 per cent. U.S. equities saw slightly greater losses, with the S&P 500 index dropping 13.4 per cent.
Allocations to international developed markets experienced smaller losses, with the MSCI EAFE index declining by 11.5 per cent. Of all equities, those based in emerging markets performed best, with the MSCI emerging markets index registering losses of 8.4 per cent.
Little respite was found in fixed income markets, with the FTSE Canada universe bond index experiencing 5.7 per cent losses. During the quarter, long-term bonds posted the largest declines, followed by mid- and short-term segments. Declines for provincial bonds were also more severe than for corporate and federal ones.
While rising interest rates served as a headwind for equities, they may also prove to be a boon for DB pension plans.”Although rising interest rates create market uncertainty causing a decline in pension assets, higher rates improve pension funding ratios and the overall financial health of pension plans, serving as a cushion through this volatile period,” said Pries.
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