TORONTO, Jan. 31,
2023 /CNW/ - Canadian defined benefit (DB) pension
plans posted hard-hitting losses in 2022 despite a positive final
quarter, according to the latest survey from RBC Investor &
Treasury Services (I&TS).
Within the I&TS All Plan universe, pension assets returned
3.8% over the last three months of the year, bringing the annual
median return to -10.3%, the lowest observed since the 2008
financial crisis, which saw an annual median return of -15.9%.
"Pensions gained traction toward the end of 2022 despite the
ongoing volatility caused by embedded inflation and subsequent
higher interest rates imposed by central banks," said Niki
Zaphiratos, Managing Director, Asset Owners, for RBC Investor &
Treasury Services. "However, this was not enough to offset the
first two quarters of heavy losses."
Foreign equities, the top-performing asset class in Q4, returned
9.7% in the quarter, bringing full-year results to -11.3% – ahead
of the MSCI World Index, which returned -12.2%. Over the quarter, a
majority of developed markets generated healthy local currency
returns. In addition, currency gains outside of the US market
further boosted returns for unhedged portfolios (MSCI EAFE Index
CAD 15.7% versus MSCI EAFE Local 8.7%). Value stocks outperformed
growth stocks in the quarter and finished the year well ahead of
their growth counterparts (MSCI World Value 0.3% versus MSCI World
Growth -24.1%).
Canadian equities trailed their global counterparts over the
quarter and returned 6.3%, versus 5.9% for the TSX Composite Index.
Over the year, domestic stocks represented the top performing asset
class (returning -3.6% in the All Plan Universe versus -5.8% for
the TSX Composite Index), attributable to a large exposure to
commodity stocks.
Canadian pensions had their largest annual fixed income decline
in more than 30 years, losing 16.8% over the 12-month period,
compared to the -11.7% return for the FTSE Canada Bond Index. As
central banks enacted restrictive monetary policy to tame surging
inflation, yields rapidly rose across the spectrum. The weakness
spread across the market, but inflation-sensitive, longer-duration
bonds were the most affected. The FTSE Canada Long Overall Bond
Index declined 21.8%, while FTSE Canada Short Overall Bonds were
down 4.0%.
"It was a challenging year for pension asset managers," noted
Zaphiratos. "Both equities and fixed income asset classes, which
typically offset each other, experienced losses. However, the rapid
rise in bond yields resulted in the lowering of pension liabilities
– and most pensions ended the quarter in a better position."
Zaphiratos continued: "In the next few months, plan sponsors
will need to be attentive to risk factors such as the economic
impact of the central banks' actions, ongoing geopolitical tensions
and ongoing efforts to contain the COVID virus outbreak in certain
emerging markets."
Historic performance
Period
|
Median return
(%)
|
Period
|
Median return
(%)
|
Q4 2022
|
-10.3
|
Q3 2020
|
3.0
|
Q3 2022
|
0.5
|
Q2 2020
|
9.6
|
Q2 2022
|
-8.6
|
Q1 2020
|
-7.1
|
Q1 2022
|
-5.5
|
Q4 2019
|
2.0
|
Q4 2021
|
4.5
|
Q3 2019
|
1.7
|
Q3 2021
|
0.6
|
Q2 2019
|
2.7
|
Q2 2021
|
4.4
|
Q1 2019
|
7.2
|
Q1 2021
|
-0.2
|
Q4 2018
|
-3.5
|
Q4 2020
|
5.4
|
Q3 2018
|
0.1
|
About the RBC Investor & Treasury Services All Plan
Universe
RBC Investor & Treasury Services has
managed one of the industry's largest and most comprehensive
universes of Canadian pension plans for more than 30 years. The All
Plan Universe, a widely recognized performance benchmark indicator,
tracks the performance and asset allocation of a cross-section of
assets across Canadian defined benefit pension plans. The All Plan
Universe is produced by RBC Investor & Treasury Services' Risk
& Investment Analytics service, which delivers independent and
cost effective solutions that help institutional investors monitor
investment decisions, optimize performance, reduce costs, mitigate
risk and enhance governance.
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About RBC Investor & Treasury Services
RBC
Investor & Treasury Services (RBC I&TS) provides
asset, payment and treasury services to financial institutions and
asset owners worldwide. We are a leader in Canadian cash management
and transaction banking services. Trusted with nearly 4 trillion in
assets under administration, our focus is on safeguarding client
assets and supporting our clients' growth.
SOURCE RBC Investor & Treasury Services