Interest rate jitters, global stock market corrections and the strengthening loonie erased 3.1% from the value of Canadian pension funds in the quarter ending June 2006, according to a survey released today by RBC Dexia Investor Services.

Within the $340 billion “Benchmark” universe, year-to-date investment returns are barely positive at 0.9%. “But to put these results into perspective, this is the first negative quarter in over three years – and the median Canadian pension fund is still up a healthy 11.4% for the period,” explained Don McDougall, director advisory services, RBC Dexia Investor Services. In the latest 12 months, performance averaged 6.8%.

“Pension funds survived three rough months of turbulent volatility. Both stocks and debt took it on the chin, with global equities and longer duration bonds absorbing the biggest hits,” observed McDougall.

During the quarter, global stocks slipped, dropping the MSCI World Index by 3.0% in local currency terms. Translated into Canadian dollars, these losses grew to 5.0%, magnified by the Canadian dollar’s appreciation against both the Japanese yen and the US dollar. “Fortunately, most Canadian pension funds remained under-exposed to the US market, and that helped mitigate the damage,” added McDougall. “In fact, pension plans outpaced the quarterly benchmark by 0.2%.”

Canada’s equity market also stumbled, dropping 3.5% in the quarter. Information technology, the worst-performing sector, plunged 21.5%, but it was actually the 7.1% decline in widely-held financial stocks that had the greatest overall impact. According to the RBC Dexia survey, pension funds under-performed the S&P TSX composite index by 0.4%. “The typical pension fund had reined in exposure to the more speculative – but better-performing – energy and materials stocks, while remaining overweight in the financial sector,” noted McDougall.

In domestic bonds, speculation about further interest rate hikes triggered another sell-off, resulting in a 1.1% loss on the quarter, on par with the Scotia Capital Universe Bond Index.