Faltering global equity markets contributed to a decline in pension assets in the second quarter, according to a survey released Thursday by RBC Dexia Investor Services. The decline comes after four consecutive quarters of positive returns.

Within the $340 billion RBC Dexia universe, Canadian pension plans lost 3.2% in the three months ending June 30, 2010, erasing first quarter gains while bringing year-to-date results into negative territory at 1.4%.

“After an encouraging four successful quarters of positive returns, it was difficult for Canadian pension plans to hold their ground in the second quarter,” says Don McDougall, director of advisory services for RBC Dexia.

Non-Canadian equities was the hardest hit asset class, dropping 8.3% in the quarter while only outperforming the MSCI World Index by 0.2%. Exchange rates were a key factor again this quarter as the MSCI World Index fell by 11.2% in local currency terms, but a weaker Canadian dollar against most major currencies helped soften the blow for unhedged pensions.

“Currency moves have tended to cancel themselves out so far this year but volatility in the foreign exchange markets continues to create challenges for Canadian pension plans,” notes McDougall.

Canadian equity markets fared little better, losing 5.5% in the quarter as most sectors retreated. The top heavy financials sector fell 9.8% and accounted for the majority of the decline. Pensions also lagged the S&P TSX Composite Index by 1.1% in the quarter largely because of poor performance in the materials sector, likely caused by an under-exposure to gold stocks.

Bonds provided some relief, earning 3.1% while surpassing the DEX Universe bond index by 0.2% for the quarter. As well, corporate bonds lagged government debt for the first time in six quarters.

“Longer duration bonds outperformed in the quarter allowing pension plans with liability matching strategies to do better,” McDougall says.