Stable global credit markets and rebounding equities continued to rejuvenate Canadian pension fund returns in the third quarter, according to a survey released by RBC Dexia Investor Services.

Within the $310 billion RBC Dexia universe, pension plans earned 7.2% in the quarter ending September 30, boosting year-to-date results to 14.3%.

“Two solid back-to-back quarters doesn’t necessarily make a recovery, but it’s good to see some positive momentum,” says Don McDougall, director of Advisory Services for RBC Dexia.

Domestic stocks remained the top performing asset class for Canadian pensions, growing 10.6% in the quarter and 29.6% over the year-to-date.

“Advances were fairly broad, but the top heavy weightings in financials, energy and the materials sectors accounted for more than two thirds of the increase so far this year,” notes McDougall.

“Remarkably, pensions kept pace with the S&P/TSX Composite index in the quarter despite being underexposed to all three key sectors.”

In foreign equity, currency losses continue to overshadow global stock market gains. Year-to-date, the MSCI World index climbed 20.3% in local currency terms, but pension plans only increased by 10.5% once converted into Canadian dollars. “The stronger loonie has held us back in 2009, but we weren’t complaining last year when its weakness went a long way to soften our losses,” says McDougall.

Canadian bonds also contributed, advancing 3.4% in the quarter and 8.2% year-to-date. “Pension plans easily recouped all of last year’s underperformance, outpacing the DEX Universe index by a huge 2.6% over nine months, as corporate spreads narrowed even further during the quarter,” says McDougall.

IE