Canadian pension plans suffered reverses in the final two quarters of 2007, as the spreading global credit crunch hurt stock market performance, according to a survey released today by RBC Dexia Investor Services.

Within the $340 billion RBC Dexia universe, Canadian pension funds lost 0.5% in the quarter ended December 31, returning a paltry 1.5% for the year.

“2007 was tumultuous, as the soaring loonie and spiking energy prices reached record highs, against a backdrop of tightening global credit and recessionary pressures in the U.S.,” says Don McDougall, director advisory services for RBC Dexia. “However, after four consecutive years of double-digit annual returns, some weakening was in the cards.”

Canadian equities were the dominant asset class, producing a respectable 8.5% over the year, but lagging the S&P/TSX composite index by 1.3%. “It was tough to beat the market in 2007, with gains concentrated in just a few stocks,” says McDougall. The top three contributors generated more than half the TSX return in 2007: Research in Motion (up 127%), Potash Corp. of Saskatchewan (up 158%) and Alcan (up 72%).

“Again in 2007, currency was a critical factor for Canadian-based investors,” said McDougall. Year-over-year, Canada’s dollar appreciated by more than 12% against a basket of world currencies, including 16% against the U.S. dollar, 15% against the British pound and 9% against the Japanese yen. “The loonie’s remarkable ascent against major currencies prevented most pension plans from benefiting from rising foreign stock markets,” adds McDougall. The MSCI world index’s 4.7% gain in local currency terms translated into a loss of 7.5% for the year, once exchange rates were taken into account.

Canadian bonds earned only 3.4% for the year, despite a solid 2.6% rise in the final quarter — their worst annual performance since 1999 and 0.3% behind the DEX universe bond index.