On the surface, Canadian balanced fund managers did fairly well during the first six months of this year, with a median return of 5.3%. However, the positive return did not improve the overall state of Canadian pension funds, says Mercer Investment Consulting.

“While pension funds like to see strong returns, they don’t want them to be driven by returns from the Canadian long bond segment as we saw in the second quarter, since this will result in an offsetting increase in the liabilities,” said Peter Muldowney, principal for Mercer Investment Consulting in Canada, in a release.

This picture is reflected in Mercer’s Canadian Pension Health Index, an indicator of the impact of capital markets on the financial position of Canadian pension plans. The index was 79% at the end of June 2005, down from 84% at the end of December 2004. This index is now at its lowest level since June 30, 2003.

Mercer says the long segment of Canadian bonds was the best performing asset class for the first six months of 2005, as shown by the Scotia Capital Long Term bond index which returned 10.1% over this period.

The median Canadian bond universe return underperformed the Scotia Capital Universe index by 0.2% over the last six months.

Canadian equities were the next best performing asset class over the past six months, returning 8.1% as shown by the S&P/TSX Composite index. All major styles and market caps had positive returns. Large Cap stocks were the strongest performers, with the S&P/TSX 60 returning 9.5% during this period. The median return for Canadian equities outperformed the return of the S&P/TSX Composite index over the past six months by 0.1%.

U.S. equities returned 1.4% over the past six months, as shown by the S&P 500 index (in Canadian dollar terms). Active managers compensated for this low return, with the median U.s. equity return being 1.0% above the index.

International equities was the poorest performing asset class, with the MSCI EAFE returning 1.4% over the last six months (in Canadian dollar terms). The median return of international equity managers was 0.1% lower than the index.