Pension plans posted 0.6% in Q2 as equities outperformed and central banks held rates amid uncertainty
Equities offset volatility and policy uncertainty to push Canadian pension plans to a modest gain in the second quarter of 2025.
The Northern Trust Canada Universe reported a median return of 0.6 percent for Q2 and 1.8 percent year-to-date as of June 30.
Canadian equities, measured by the S&P/TSX Composite Index, advanced 8.5 percent for the quarter. All sectors posted gains.
Information Technology and Consumer Discretionary led performance, while Energy was the weakest sector.
US equities, measured in Canadian dollars by the S&P 500 Index, rose 5.2 percent.
Information Technology and Communication Services posted double-digit gains, while Energy and Health Care saw double-digit declines.
International developed markets, based on the MSCI EAFE Index, returned 6.2 percent in Canadian dollars. Communication Services led returns, while Energy and Health Care declined.
Emerging markets, measured by the MSCI Emerging Markets Index, gained 6.4 percent in Canadian dollars, with Information Technology and Industrials leading and Consumer Discretionary posting the only loss.
The Canadian dollar appreciated over 5 percent relative to the US dollar, ending the quarter at 73.48 cents USD.
Fixed income lagged.
The FTSE Canada Universe Bond Index declined 0.6 percent for the quarter. Corporate bonds produced positive returns, but Federal and Provincial bonds declined.
Short-term bonds gained modestly, while mid- and long-term bonds posted losses.
The Northern Trust Canada Universe tracks Canadian institutional defined benefit plans that use Northern Trust’s performance measurement services.
Global economic conditions reflected continued trade-related uncertainty and market swings.
The quarter featured conflict in the Middle East, persistent tariff disputes, and shifts in financial markets triggered by changing signals from the US administration on trade.
The US threatened major tariffs, only to withdraw them in later stages of negotiation.
The Canadian economy experienced mixed signals.
The unemployment rate edged up to 6.9 percent in June from 6.7 percent in March. Wage growth remained above inflation, personal savings rates stayed steady, and banks managed credit risk.
Despite some indications of slowing, the Bank of Canada held its overnight rate at 2.75 percent in June.
The central bank cited a “softer but not sharply weaker” economy, inflation firmness, and ongoing tariff uncertainty as reasons for maintaining the current rate.
The US economy showed relative consistency. Inflation reached 2.7 percent in June, up from 2.4 percent in May and the highest since February. Unemployment dropped to 4.1 percent.
The Federal Reserve held its federal funds rate in a target range of 4.25 to 4.50 percent, unchanged since December.
International central banks made divergent moves.
The European Central Bank lowered rates for the eighth time this cycle, taking its deposit facility rate to 2 percent.
The Bank of England maintained its rate at 4.25 percent, with inflation above its target.
The Bank of Japan held its benchmark rate at 0.5 percent and confirmed plans to reduce government bond purchases beginning April 2026.
In emerging markets, the People’s Bank of China held its one-year and five-year loan prime rates at 3.0 and 3.5 percent.
The Central Bank of Brazil raised its Selic rate by 25 basis points to 15.0 percent due to persistent inflation and external volatility.
The Reserve Bank of India cut rates by 50 basis points, responding to softening inflation and global trade pressures.
Jeff Alexander, president and CEO of Northern Trust Canada, said pension plan investments have performed “reasonably well,” helping drive a rise in plan assets this year.
He added that this performance “serves as a cushion providing further support to long term plan sustainability as plan sponsors navigate through uncertain times.”
