Despite a volatile fourth quarter of plunging oil prices and geopolitical conflict, Canadian DB pension plans posted returns of 11.9% last year, shows the latest survey from RBC Investor & Treasury Services.
The research indicates DB plans generated positive returns for a sixth consecutive quarter during the fourth quarter of last year, returning 2.7%.
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“While pensions overall continued to have solid returns against a backdrop of challenging macroeconomic factors, the decline in long-term interest rates has likely increased plan liabilities,” says Scott MacDonald, managing director, pensions, RBC Investor & Treasury Services. “This puts pressure on many Canadian DB plans despite strong performance in all asset classes.”
The best performing asset class in 2014 was foreign equities, returning 13.5% as well as 14.4% for the benchmark MSCI World Index. With the U.S. dollar appreciating 9% against the loonie, American equities returned 22.9% for the year, making them the largest contributor of foreign equity gains for Canadian DB plans, MacDonald explains.
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Canadian equities returned 10.5% for year, in line with the benchmark TSX Composite Index. “Canadian DB Plans were better positioned to withstand the fall in oil and commodity prices in the second half of 2014 as they were underweight in both the energy and materials sectors,” says MacDonald.
Domestic bonds brought returns of 9.9% as yields fell across the curve. Long-duration bonds remained the best performing segment, with the FTSE TMX Canada Long Term Overall Bond Index returning 5.3% for the quarter and 17.5% for the year.