After three consecutive quarters of gains, Mercer’s pension index shows that many Canadian plans suffered moderate losses in the second quarter of 2011 as a result of negative Canadian equity returns and a decline in federal bond yields. The index stood at 71% as of June 30, down 4% over the quarter.
“Long-term federal bond yields dropped about 20 basis points in the quarter, reversing the trend of the previous two quarters,” said Scott Clausen, retirement, risk and finance professional leader for Canada. “This decrease in bond yields, coupled with an increase in the cost of purchasing annuities, dropped the index by about 3%. The remaining 1% decline in the index is due to investment returns.”
“Pension fund returns were impacted by a negative 5.1% return of the S&P/TSX Composite Index,” added Rob Stapleford, leader of Mercer’s investment consulting business in central Canada. “The information technology, materials and energy sectors lagged the market due to concerns about the global economy. Foreign equity returns (in Canadian dollars) were slightly negative. Bond returns were positive but could not overcome negative equity returns thereby lending to fund returns lagging the liability benchmarks.”
A typical balanced portfolio would have returned negative 0.2% for the quarter.