Canadian pension funds began 2017 with their fourth straight quarter of positive returns thanks to a boost from global equities markets, according to a new report from Royal Bank of Canada’s (RBC) Treasury unit.
Notably, Canadian defined-benefit pension plans generated a 2.9% return in the first quarter (Q1) following a 6.8% return in 2016, according to the RBC Investor & Treasury Services All Plan Universe, which tracks the performance of more than $650 billion in assets under management in Canadian pension plans.
Strong global equities markets powered the gains in Q1, the report notes. Global equities recorded a 6.2% return in Q1, up from 3% in the prior quarter. This helped offset a slowdown in Canadian equities returns, which dipped to 2.3% in Q1, down from 5.7% in the fourth quarter (Q4) of 2016 amid “weakness in the energy sector at the beginning of the year.”
RBC’s Treasury unit also reports that Canadian fixed-income assets rebounded in Q1, generating a 1.4% return in the quarter, up from a performance of -3.4% in the prior quarter.
Read: Equities drive Q1 gains for Canadian DB pensions: Northern Trust
“The Canadian bond market remained stable against a number of national and international events, including the delivery of the Canadian federal budget, a U.S. interest rate hike and continuing Brexit developments,” the report says.
The U.S. dollar also depreciated against the Canadian dollar in Q1, the RBC report notes, with the greenback losing 0.6% against the loonie compared with a 2% gain in Q4 of 2016.
“Canadian pension plan returns, led by strength in Canadian and global equities, are off to a good start in 2017; however vigilance is still required,” says James Rausch, head of client coverage, Canada, RBC Investor & Treasury Services, in a statement. “While ongoing business investment in Canada could spur growth, asset managers will undoubtedly be focusing on maintaining a diversified portfolio and actively managing their risk exposure in the period ahead given evolving macroeconomic and political forces around the world.”