After seven consecutive quarters of positive returns, Canadian pension plans broke their winning streak in the second quarter of 2015.
According to the $650 billion RBC Investor & Treasury Services All Plan Universe, global economic concerns, weakness in Canadian energy and resource sectors, and rising bond yields over the past quarter weighed heavily on DB plan assets, which declined by 1.6% for the second quarter of 2015.
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This is the largest negative decline since the third quarter of 2011, when assets fell by 5.5%.
“Uncertainty in the global economic landscape—particularly surrounding the deteriorating situation in Greece—and the ongoing fallout from the drop in the price of oil put pressure on pension plan performance over the past quarter,” says David Heisz, CEO of RBC Investor Services Trust.
“Additionally, long-term bond yields trended higher in Q2, retracing to levels seen prior to the Bank of Canada’s rate cut in January. While returns on bond holdings have been negatively impacted, the higher yields would have eased the pressure on plans’ solvency ratios as projected liabilities move inversely with long-term interest rates.”
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Foreign equities lost 0.8% for Canadian plans in Q2, edging the benchmark MSCI World Index lower by 0.3%. This quarter saw the re-emergence of several old themes: the Greek debt crisis continues to drag on and contributed to investor nervousness, particularly in European markets; the U.S. economy bounced back in the second quarter, but faces headwinds from a stronger U.S. dollar; and, China’s economic expansion has slowed, but its stock market has been on a very volatile run.
Canadian equities also moved backwards, losing 1.4% for the quarter versus negative 1.6% for the benchmark TSX Composite Index.
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Canadian 10-year yields moved higher in the second quarter, in line with global interest rates, and Canadian plans returned negative 2.1% in this asset class. With the yield curve steepening, the long duration bonds segment had the biggest decline, with the benchmark FTSE TMX Long Bond index returning negative 4.6%.