Canadian pension plans started the year off on a positive note with their best results since the September 2010 quarter, according to a survey released Friday by RBC Dexia Investor Services.
Within the $420 billion RBC Dexia All Plan universe, Canadian defined benefit (DB) pensions earned 4.5% in the quarter ending March 31, 2012.
“Even with some levelling off in March, Canadian pension plans continued to build on the momentum from the fourth quarter of 2011,” saya Scott MacDonald, head, pensions, insurance, financial institutions segments for RBC Dexia. “The appetite for equities gained steam, reflecting a renewed sense of tempered optimism and the continued need for pension plans to seek higher returns through increased equity allocation.”
Foreign equities within the DB universe led the charge in the first quarter with a median return of 9.9%, outperforming the benchmark MSCI World index by 0.4%.
“Double digit returns from the consumer discretionary, financials and information technology sectors contributed to the foreign equity rally,” adds MacDonald. “However, the Canadian dollar also performed well, taking away performance from Canadian DB plans as the MSCI world index returned 11.2% in local currencies.”
Canadian equities within the DB universe also benefitted from a very strong January and February to withstand a rather lacklustre March. A second consecutive positive quarter saw pensions outperform the S&P TSX Composite index, gaining 5.6% compared to the benchmark performance of 4.4%.
“The strength of bank earnings helped the financials sector gain 11.0% over the quarter, and the equities success story continued with eight of the 10 sectors in the S&P TSX Composite index ending the quarter in positive territory,” sys MacDonald.
In contrast, bonds were the underperformers in the first quarter, as fixed income holdings in both the DB universe and the DEX Universe Bond index dropped a marginal 0.2%.
“In the first quarter of 2012, signs of economic stability in Europe and improved US economic data led investors to take on more risk,” says MacDonald. “The spread between government and corporate bonds narrowed in the first quarter as investors looked for higher returns from the space.”