TORONTO, Jan. 7 /CNW/ - Good stock market returns and a slight rebound
in long-term federal bond yields in the fourth quarter allowed Canadian
pension plans to make up for most of the losses incurred in the second
quarter. The Mercer Pension Health Index* stands at 73 percent on
December 31, up 5 percent over the quarter but down 1 percent on the
"Stocks delivered another strong performance in the fourth quarter and
in 2010 overall, both domestically and abroad, with the biggest gains
observed in Canadian stocks, signaling continued increase in consumer
and investor confidence," said Yvan Breton, Leader of Mercer's
Investment Consulting business in Canada and Latin America. "The
typical pension plan experienced a return on assets of almost 4 percent
in the fourth quarter, improving the Mercer Pension Health Index by
about 2 percent."
"After dropping 70 basis points in the second and third quarters of the
year, long-term federal bond yields rebounded by roughly 20 basis
points in the fourth quarter, which, together with a slight drop in the
cost of purchasing annuities, bumped the index up about 3 percent,"
said Scott Clausen, Retirement, Risk and Finance professional leader
for Canada. "Over the year, strong asset performance was offset by the
overall drop in long-term federal bond yields. Any increase in the
actual funded status of pension plans in 2010 is likely due to
employers pouring cash into their plans," Clausen added.
Mercer expects that the funded ratio of most pension plans as shown in
year-end 2010 corporate disclosures will drop compared to last year,
even after employer contributions are accounted for, since corporate
bond yields used to value obligations for that purpose have dropped
around one percent since the start of the year, due in part to a
continued decline in credit spreads.
To view "Ratio of assets to liabilities", "Changes in Bond Yields", and
"Asset Class Returns" charts, please use the following link: http://files.newswire.ca/823/mercer_charts_EN.pdf
A typical balanced portfolio would have returned 9.2 percent during 2010
and 3.6 percent in the last quarter of 2010. This return does not
capture any impact from active management of any asset class.
Canadian equities was the best performing asset class in 2010 with a
return of 17.6 percent. The S&P/TSX returned 9.4 percent in the last
The best performing sectors for the year ending 2010 were Health Care
(+57.0%), Materials (+36.5%) and Consumer Discretionary (+25.3%)
according to the S&P/TSX sector indices. The worst performing sectors
were Information Technology (-11.6%), Consumer Staples (+10.3%) and
Small cap stocks returned 35.1 percent (S&P/TSX SmallCap Index),
significantly outperforming large cap stocks (S&P/TSX 60 index) which
returned 13.8 percent.
Value stocks outperformed growth stocks as shown by the S&P Canada BMI
value and growth indices, which returned 20.6 percent and 16.5 percent
Canadian bond performance, as measured by the DEX Universe Bond index,
returned 6.7 percent in 2010, led by long-term bonds which gained 12.5
percent, followed by mid-term bonds (7.8%) and short bonds (3.6%).
During 2010, overall bond yields (measured by the DEX Universe Bond
index yields), started the year at 3.32 percent, reaching a high of
3.62 percent in April and fell to a low of 2.72 percent in October
before settling at 3.11 percent for the year.
The strengthening of Canadian dollar versus most other major currencies
had an overall negative impact on foreign equities during 2010.
International equities, as measured by the MSCI EAFE (CAD) index,
provided a return of 2.6 percent in 2010. In local currency terms the
MSCI EAFE returned 5.3 percent.
In the US, the S&P500 (CAD) returned 9.1 percent in 2010. In US dollar
terms, the S&P500 returned 15.1 percent.
Emerging markets, as measured by the MSCI Emerging Markets (CAD) index,
returned 13.0 percent in 2010.
* The Mercer Pension Health Index shows the ratio of assets to liabilities for a model pension plan. The
ratio has been arbitrarily set to 100 percent at the beginning of the
period. The Index assumes contributions equal to current service cost
and no plan improvements. Assets: Passive portfolio with asset mix
shown below. Liabilities: 50 percent active members, 50 percent
retired members; Canadian Institute of Actuaries transfer values (April
2009 standard after April 1, 2009) without the two-month lag for active
members and annuity purchase proxy values for retired members. Results
will vary by pension plan.
Asset mix: 42.5% DEX Universe Bond Total Return Index; 25% S&P/TSX
Composite; 15% S&P 500 (CAD); 15% MSCI EAFE (CAD); 2.5% DEX 91 day
Mercer is a leading global provider of consulting, outsourcing and
investment services. Mercer works with clients to solve their most
complex benefit and human capital issues, designing and helping manage
health, retirement and other benefits. It is a leader in benefit
outsourcing. Mercer's investment services include investment consulting
and multi-manager investment management. Mercer's 20,000 employees are
based in more than 40 countries. The company is a wholly owned
subsidiary of Marsh & McLennan Companies, Inc., which lists its stock
(ticker symbol: MMC) on the New York, Chicago and London stock
exchanges. For more information, visit www.mercer.ca.
For further information:
416 868 2364