The average Canadian defined benefit pension plan posted returns of 0.8 per cent in the second quarter of 2023, according to RBC Investor and Treasury Services’ universe.

Foreign equities emerged as the top performing asset class, boasting a median return of 2.9 per cent. In comparison, the MSCI world index returned 4.5 per cent, primarily driven by the information technology (12.1 per cent) and consumer discretionary (8.1 per cent) sectors.

The strength of the Canadian dollar had a softening effect on the returns of pension plans invested in foreign equities, as the MSCI world index recorded a 7.1 per cent return in local currency terms. Consequently, hedged pension plans outperformed their unhedged counterparts, noted the report.

Read: Canadian DB pension plans see median return of 4% in Q1 2023: report

U.S. equities significantly outperformed their international counterparts, with the S&P 500 returning 6.3 per cent compared to the MSCI EAFE’s return of 0.7 per cent. Canadian equities returned 1.3 per cent and the TSX composite delivered a return of 1.1 per cent.

Canadian fixed income returned 0.3 per cent, ahead of the FTSE Canada universe bond index (negative 0.7 per cent). Short-term FTSE Canada universe bonds returned negative 0.8 per cent due to an increase in short-term yields, while long-term bonds achieved a slightly positive return of 0.6 per cent.

“The analysis underscores the intricacies of the Canadian pension landscape during [the second quarter], prompting investors to remain vigilant in navigating the uncertain waters that lie ahead,” said Marijana Jovanovic, head of product transformation at RBC Investor and Treasury Services, in a press release. “While inflation has been trending favourably into [the third quarter] following July’s rate adjustment, it’s uncertain whether future interest rate increases are on the horizon.”

 Read: Canadian DB pension plans down 12.8% in 2022: report

A separate report by Northern Trust Corp. found the median Canadian DB plan returned one per cent for the second quarter. It noted the quarter was marked by a resilient global economy against a backdrop of inflation, higher interest rates, distress in the banking sector and a looming debt ceiling in the U.S.

“The first half of 2023 presented many challenges in the financial markets with the primary focus on the battle against inflation,” said Katie Pries, president and chief executive officer of Northern Trust Canada, in a press release.

“In this environment, pension plans have benefited from a growing trend towards alternative investments, given the diversification and underlying hedging feature embedded in this asset class. As we wait for the inflation pendulum to swing back to more normalized levels, higher interest rates continue to provide a cushion for the funding health of Canadian pension plans.”

Read: Global interest rate hikes influenced modest gains for Canadian DB pensions in Q3: reports