Investment returns for Canadian defined benefit plans witnessed a decline in the fourth quarter and closed out the year in negative territory, according to data from the Northern Trust Canada Universe.
“Equity markets wrapped up 2018 on a sour note amid slowing global growth, inflation fears, rising interest rates, U.S.-China trade war concerns, an unsettled Brexit and struggles in emerging markets,” said Arti Sharma, President and CEO of Northern Trust Canada. “Volatility once again resurfaced in the wake of these stresses and allowed uncertainty to dominate markets in the fourth quarter, resulting in the median Canadian plan recording a return of -3.5 percent, versus the previous quarter of -0.1 percent. Despite positive returns generated in the first half of 2018, the median Canadian plan concluded the year with a return of -1.0 percent, compared to 9.5 percent for 2017.”
The Northern Trust Canada Universe tracks the performance of Canadian institutional investment plans that subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.
Canadian equities as measured by the S&P TSX Composite Index posted a return of -10.1 percent in the fourth quarter, a significant decline from the previous quarter, and recorded a return of -8.9 percent for the year. The downward move in commodity prices, in particular the continuous decline in the price of oil, coupled with the expectation of a more moderate growth environment going forward fueled much of the weakness in the final quarter. The health care and energy sectors witnessed the brunt of the losses during the quarter. Information technology was the strongest performing sector for 2018, notwithstanding weakness in the fourth quarter.
U.S. equity markets were rocked by volatility in the fourth quarter, with the S&P 500 Index recording a return of -8.6 percent in CAD. However, the U.S. index achieved a positive return for the year, as risks arising from the U.S. Federal Reserve’s rhetoric, trade uncertainty and the mid-term elections did not overwhelm gains made in a positive start to the year, fueled by a tax-cut. The S&P 500 Index returned 4.2 percent in CAD for the year.
The MSCI EAFE Index, which measures the performance of international developed markets, returned -7.5 percent in CAD in the fourth quarter and -5.6 percent in CAD for the year. Europe faced challenges amidst the political backdrop, with the Brexit saga continuing in the UK and anti-government protests in France. During the quarter, positive returns were earmarked by high dividend paying sectors, namely utilities and real estate.
Emerging markets continue to be challenged by a strong U.S. dollar, rising Fed rates and unrelenting trade war tensions. The MSCI Emerging Markets index returned -2.2 percent in CAD for the quarter and -6.5 percent in CAD for the year.
Despite a backdrop of rising interest rates, the Canadian fixed income market as measured by the FTSE Canada Universe achieved a 1.8 percent return in the fourth quarter and 1.4 percent for the year. Federal bonds led performance over provincials and corporates for both the quarter and the year. In similar fashion, mid-term issuers outperformed for the quarter while both short and mid-term issuers outperformed their long term counterparts for the year.
Northern Trust – Canada
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