Diversified pooled fund managers posted a median return of 2.8% before management fees in the fourth quarter of 2015, according to Morneau Shepell.
Its latest Performance Universe of Pension Managers’ Pooled Funds study, which is based on the returns provided by leading portfolio managers, ranging from independent investment management firms to insurance companies, trust companies and financial institutions, also found that the median year-to-date return was 4.8%.
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The study also found that, on average, diversified pooled fund managers outperformed the benchmark for the fourth quarter of 2015. The median return (2.8%) for these managers added (0.2%) to the benchmark portfolio (with an allocation of 55% in equity and 45% in fixed income) and a return of (2.6%) used by many pension funds.
For the full year, the median manager added 1.0% to the benchmark return with a median return of 4.8% while the benchmark produced a return of 3.8%.
The study also found, in the fourth quarter of 2015, managers obtained a median return of 1.0% on bonds, which was equal to the benchmark FTSE TMX Canada Universe Bond Index return. For 2015 as a whole, managers posted a median return of 3.4%, which was 0.1% below the benchmark FTSE TMX Canada Universe Bond Index return (3.5%).
During the fourth quarter of 2015, the median return for Canadian equity managers was negative 0.6%, compared to the S&P/TSX Index negative 1.4%.
Since the beginning of 2015, Canadian equity managers obtained a median return of negative 4.6%, which is 3.7% higher than the S&P/TSX Index return of negative 8.3%.
During 2015 the S&P/TSX Small Cap Index decreased by 13.3%, whereas the S&P/TSX Completion Index representing mid-cap stocks decreased by 10%, and the large-cap S&P/TSX 60 Index posted a loss of 7.8%.
Foreign equity managers’ median returns and appropriate benchmark indices for the whole year of 2015 are as follows:
- 20.4% for U.S. equities versus 21% for the S&P 500 Index (C$);
- 19.6% for international equities versus 19% for the MSCI EAFE Index (C$);
- 19.1% for global equities versus 18.9% for the MSCI World Index (C$);
- 4.3% for emerging markets equities versus negative 2.4% for the MSCI Emerging Markets Index (C$).
In terms of alternative investments, the study reported that the Dow Jones Credit Suisse Hedge Fund Index (previously CSFB/Tremont Hedge Fund Index) posted a return of 18.5% (C$) for 2015.
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“Pension funds had an excellent fourth quarter, but returns were modest for the year as a whole,” said Jean Bergeron, partner responsible for Morneau Shepell’s Asset and Risk Management Consulting team.
“It was a very difficult year for stock markets, especially for Canadian equities and emerging-market equities. The strength of the U.S. dollar, however, helped to mitigate pension fund losses on stock markets. For a Canadian investor who held U.S. stock in 2015, exchange-rate gains were 19.6%. Also, overall, equities managers outperformed the benchmarks indices.
“Pension fund financial positions on a solvency basis fell by about 5% in 2015 due to poor stock market performance, the decrease in the interest rates used to determine the solvency liability and the use of a new mortality table.”