Canadian DB pension plans returned -4.0% in Q3, as fixed income and equity markets lost ground

TORONTO, Oct. 31, 2023 /CNW/ - The third quarter posed significant challenges for Canadian DB pension plans within the RBC Investor Services All Plan Universe, amidst intricate market dynamics. These plans reported a loss of 4.0% in Q3, bringing down the year-to-date return to 1.9% for the period ending September 30, 2023.

The market fluctuations unfolded against a global economic backdrop marked by inflationary pressures, driven in part by higher energy costs, as well as geopolitical tensions, including the Russia-Ukraine conflict and escalating trade disputes.

Fixed income assets held by Canadian DB plans experienced a decline of 6.6% over the quarter due to investors driving up government bond yields in anticipation of prolonged elevated short-term rates. The FTSE Canada Universe Bond Index decreased by 3.9%, with longer-dated bonds (FTSE Canada Long Term Bond Index -9.5%) underperforming their shorter-dated counterparts (FTSE Canada Short Term Bond Index -3.9%).

Concerns about the impact of sustained high interest rates on global economic growth led to modest losses in equity markets. DB pension plans' foreign equities experienced a minor decrease of 1.7%, slightly behind the MSCI World Index, which returned -1.4%. Within the benchmark, eight out of 11 sectors recorded negative returns, with the interest rate-sensitive utilities (-7.3%) and real estate (-5.1%) sectors being the worst performers. The energy sector, however, demonstrated notable strength, delivering a substantial return of 13.7%. Unhedged Canadian DB pension plans benefited from the weakness of the Canadian dollar against the US dollar during the quarter.

Canadian equities held by Canadian DB plans also faced modest losses, returning -2.2% for the quarter, aligning directly with the S&P/TSX Composite Index. Similar to the other developed market equity benchmarks, weakness in the Canadian benchmark was widespread (nine out of 11 sectors recorded negative returns), with relief coming from the energy sector (+10.3%).

"It's worth noting that despite the negative returns experienced by most plans in Q3, their overall financial health improved due to higher yields reducing the present value of their liabilities," commented Niki Zaphiratos, managing director and client partner, RBCIS. "The market's response to geopolitical developments emphasizes the importance of vigilant monitoring and strategic decision-making for asset owners."

Historic performance

Period	Median return (%)	Period	Median return (%)
Q3 2023	-4.0	Q2 2021	4.4
Q2 2023	0.8	Q1 2021	-0.2
Q1 2023	4.0	Q4 2020	5.4
Q4 2022	3.8	Q3 2020	3.0
Q3 2022	0.5	Q2 2020	9.6
Q2 2022	-8.6	Q1 2020	-7.1
Q1 2022	-5.5	Q4 2019	2.0
Q4 2021	4.5	Q3 2019	1.7
Q3 2021	0.6	Q2 2019	2.7

About the RBC Investor Services All Plan Universe

RBC Investor Services has published one of the industry's largest and most comprehensive universes of Canadian pension plans for more than 40 years. The All Plan Universe, a widely-recognized quarterly benchmark, tracks the performance and asset allocation of a cross-section of assets across Canadian defined benefit pension plans, helping institutional investors monitor investment decisions, optimize performance and mitigate risks.

About RBC

Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 97,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada's biggest bank and one of the largest in the world, based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our more than 17 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.

We are proud to support a broad range of community initiatives through donations, community investments and employee volunteer activities. See how at rbc.com/community-social-impact.

About RBC Investor Services

RBC Investor Services delivers asset servicing solutions to Canadian asset managers and asset owners, investment counsellors and other financial institutions. Part of Royal Bank of Canada, Canada's largest bank and one of the top 15 banks globally, our focus is on safeguarding the assets of our clients and supporting their growth.

SOURCE RBC Investor Services

Ylana Kurtz, [email protected], 416 348-2330