Strength in Canadian equities have helped Canadian pension plans surge ahead of their pre-financial crisis levels of 2008, according to a survey released Friday by RBC Dexia Investor Services.

Within the $340 billion RBC Dexia universe, pension assets earned 4.3% in the quarter ending December 2010, improving the full year performance to 10.4%, making this a second consecutive year of double-digit returns.

Despite the volatility in the global markets during the past 10 years, Canadian pension plans have achieved an average annualized return of 5.4%.

“What the last decade has taught us is that diversification and disciplined investing is key over the long run,” noted Fay Coroneos, global head of risk & investment analytics for RBC Dexia.

Canadian equity markets flourished as nine out of 10 TSX sectors experienced double-digit annual gains. Even though Canadian pension plans underperformed the index by 0.4%, “it was encouraging to see strong returns not only in energy and materials but also in industrials and the consumer discretionary sectors” added Coroneos.

Foreign equities increased 6.3% over one year. “Returns were muted by the soaring loonie, which gained significantly against the U.S. dollar and was one of the best performers among major world currencies,” reported Coroneos. The MSCI World index in local currency increased 10.0% for the year, but was reduced to 5.9% when translated into Canadian dollars.

For the year, domestic bond holdings within Canadian pension plans advanced 7.8%, surpassing the DEX Universe index by 1.1%.

“Long-term bonds, with maturity of over 10 years, continue to dominate short-term and mid-term bonds in 2010,” said Coroneos. “The growing focus on asset-liability matching has resulted in pension plans shifting into the longer end of the yield spectrum, increasing demand for long-term bonds. In light of this, we believe a governance structure which includes the use of a liability-based benchmark will be of great interest for pension plans in 2011.”

IE