Canadian pension investments show positive returns despite inflation

Median plan returned 1% in Q2

Canadian pension investments show positive returns despite inflation

The median Canadian pension plan concluded the first half of the year with returns amassing 1% by the end of the second quarter and 5.3% year-to-date, a report by Northern Trust Canada Universe (NTCU) said.

The universe tracks the performance of Canadian institutional defined benefit plans that subscribe to performance measurement services as part of Northern Trust’s asset service offerings.

“The first half of 2023 presented many challenges in the financial markets with the primary focus on the battle against inflation. In this environment, pension plans have benefited from a growing trend towards alternative investments, given the diversification and underlying hedging feature embedded in this asset class.” said Katie Pries, president and CEO of Northern Trust Canada.

In the second quarter of 2023, the global economy was notably subjected to sticky inflations, increasing interest rates, distress in the banking sector, and an impending debt ceiling in the US. Despite the eventual alleviation of banking problem concerns and the fulfillment of a US government borrowing resolution, monetary authorities around the globe continued to worry about the persistence of inflation and the tight labor markets.

Efforts by the global market allowed globally developed equity markets to end the quarter on a positive note despite bond returns weakening as yields rose.

Investment returns for Q2

Canadian equities returned a total of 1.1% for the second quarter, as measured by the S&P/TSX Composite Index. The top performer for Q2 was Information Technology, which is followed by the Consumer Discretionary sector. The sectors that showed the weakest results for the quarter were Materials, Real Estate, and Consumer Staples.

US Equities reached 6.3% in returns for Q2, as measured by the S&P 500 Index. 7 out of 11 sectors showed positive results with Information Technology, Communication Services, and Consumer Discretionary sectors had double digit returns. The largest decline was seen in the Utilities and Energy sectors.

International developed markets had 0.9% of returns for the quarter, as measured by the MSCI EAFE Index. Its top performers were the Industrials, Information Technology, and Consumer Discretionary sectors. Its largest declines were found in the Communication Services, Real Estate, and Materials sectors.

The MSCI Emerging Markets Index had a -1.2% decline with only 4 out of 11 sectors showing positive results. Top performing sectors were the Energy, Financials, and Information Technology sectors. Communication Services, Consumer Discretionary, and Real Estate sectors were among the sectors that showed the weakest results.

Household debt in Canada is now the highest among the G7 countries as it represented 107% of the GDP. The unemployment rate in the country rose to 5.4% in June from 5.0% in April. While the inflation readings are lower than in the previous quarters, they are still above the BoC’s target. Canadian CPI was recorded to be 2.8% in June while it was 4.3% in March.