Northern Trust Pension Universe Data: Canadian Defined Benefit Plans conclude 2019 with double-digit returns
TORONTO – Canadian defined benefit plans generated a median return of 13.6 percent for the year in 2019, with North American equities leading the way, according to data from the Northern Trust Canada Universe.
Canadian DB Plans benefitted from a sharp increase in equity market returns in the latter part of the quarter, with the median Canadian plan generating a 1.9 percent return for the fourth quarter versus the previous quarter of 1.6 percent. “Despite a year plagued with negative headlines, fueled with uncertainty and low expectations, Canadian pension plans navigated through the turbulence and continued on a journey of positive returns” said Arti Sharma, President and CEO of Northern Trust Canada. “Equity markets closed 2019 in a strong position, realizing solid double digit gains for the year. As a result, plans in the Northern Trust Canada Universe marked a considerable improvement over the -1.0 percent median return in 2018.”
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.
In the fourth quarter, equity markets overcame a backdrop of geopolitical tension to post positive results. In conjunction with favourable monetary policy, initial progress on U.S.-China trade negotiations, as well as potential clarity on the path to a Brexit resolution, all set the stage for a positive tone and promising sentiment.
Canadian Equities, as measured by the S&P TSX Composite Index, gained 3.2 percent for the quarter and closed the year with a solid 22.9 percent return, its best annual return since 2010. Although the labour market demonstrated softness early in the quarter, improvement began to surface later in the quarter as employment numbers increased. Alberta’s announcement to lift drilling restrictions on new oil wells served as another supportive economic measure. Among the sectors comprising the index, the I.T. sector demonstrated the most momentum continuing its rally, generating a double digit return for the quarter and closing the year as the top performing sector.
U.S. equity markets gained momentum on positive announcements surrounding phase one of the U.S. - China trade deal, strong economic data as well as a rally in technology shares. The S&P 500 Index reached fresh highs during the quarter generating a return of 6.8 percent in CAD and finishing 2019 with a robust return of 24.8 percent in CAD. A strong economy, resilient labour market and accommodative monetary policy contributed to the positive results for the quarter and strong finish to the year.
International equities, as measured by the MSCI EAFE Index, gained 6.0 percent in CAD for the quarter and finished the year on a strong note, generating a 16.5 percent return in CAD. Despite economic weakness in the Eurozone, the U.K. Prime Minister’s election victory coupled with the European Central Bank’s (ECB) re-engagement in quantitative easing contributed to the equity index closing on a positive note. All sectors within the index closed the full year with positive returns, with the I.T. and Health Care sectors leading the gains both for the quarter and the entire year.
Emerging Markets witnessed a healthy rally during the fourth quarter, with the MSCI Emerging Markets Index posting a solid 9.6 percent in CAD for the quarter and generating a 12.9 percent return in CAD for the year. Despite the political tensions in Latin America and Hong Kong, Emerging Markets responded favourably to easing trade tensions between the U.S. and China. Central Bank actions in the fourth quarter from China, Brazil and Turkey also served to aid their respective economies. All sectors of the index generated positive returns for the quarter, with the I.T. sector garnering top performance for the quarter and the year.
The Canadian fixed income market as measured by the FTSE Canada Universe Index witnessed a decline during the fourth quarter, posting a return of -0.9 percent. Despite the weakness during the last quarter, the index generated a healthy 6.9 percent return for the year. During the quarter, Corporate Bonds outperformed both the Federal and Provincial sectors and Short term bonds exceeded returns of both the Mid and Long Term segments. Although, the Bank of Canada (BOC) maintained their policy rate at 1.75% for 2019, the BOC continues to monitor the impact from trade tensions in conjunction with economic data including consumer spending, housing activity and inflation.
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