The Ontario Teachers’ Pension Plan posted a 1.9% return in the first half of 2023, largely missing out on rebounding stock markets as its asset mix favoured bonds and alternatives.

With interest rates rising, the pension plan manager increased its bond holdings to $118 billion on June 30 from $76.2 billion at the beginning of the year, according to its mid-year earnings report released Tuesday.

Bonds made up less than one-third (31%) of the portfolio on Dec. 31 but increased to almost half (48%) by June 30. Public equities held steady at 9% of assets over the same period.

After a dismal 2022, stock markets rebounded in the first six months of this year: the S&P/TSX Composite was up 4% through June 30, while the S&P 500 was up almost 16%.

Last year, when the S&P 500 sank more than 19% and the S&P/TSX Composite dropped more than 8%, Ontario Teachers’ rode investments in private equity, infrastructure and credit to a 4% annual return.

“Our investment portfolio is purposely designed to help us achieve stable returns over the long term, and our half-year results demonstrate that our portfolio construction is working as planned,” said Jo Taylor, Ontario Teachers’ president and CEO.

“Our balanced portfolio positions us well to navigate markets that we anticipate will continue to be volatile in the coming years.”

The pension plan, with net assets of $249.8 billion on June 30, said it saw positive returns in private equity, infrastructure and credit over the first six months.

For the 12 months to June 30, the fund’s return was 4.8%. Its 10-year annualized return was 8.6%.

The plan was fully funded on Jan. 1 with a $17.5-billion surplus.