Pension plans rise 1.5 percent in Q1 2025 as volatility hits US stocks and central banks adjust policy
Canadian pension plans posted gains in the first quarter of 2025 despite volatile global financial conditions and tariff-related uncertainty.
According to the Northern Trust Canada Universe, the median Canadian pension plan rose 1.5 percent over the three-month period.
The Northern Trust Canada Universe tracks the performance of Canadian institutional defined benefit plans that use Northern Trust’s asset service performance measurement.
Tariff directives from the US administration drove up macroeconomic uncertainty and volatility across financial markets.
While macroeconomic data remained relatively healthy, global investors faced uncertainty stemming from trade tensions.
Some major central banks cut interest rates during the quarter as inflation showed signs of progress, but the US Federal Reserve kept its benchmark rate unchanged and maintained a cautious outlook.
Despite rising fear linked to tariff announcements, non-US equities delivered overall positive returns.
US stocks, however, experienced a correction and ended the quarter with negative performance.
Bonds played a stabilizing role, finishing the quarter with positive returns, while gold hit a record high in mid-March.
The Canadian dollar swung throughout the quarter but closed near its starting level.
Northern Trust Canada CEO Katie Pries stated that fear and uncertainty cascaded across financial and currency markets during the first quarter, dampening global investor sentiment.
“As investors look for clarity and markets seek out a path to certainty and stability,” she said, pension plan sponsors remained sound and committed to protecting plan assets through the volatility.
Volatility remained elevated throughout the quarter, continuing to test investor sentiment.
Tariff turbulence had ripple effects, but global equities generally gained during the quarter, except for US equities which posted a sharp decline. Bonds navigated the conditions well, delivering strong results.
Market performance breakdown
Canadian equities rose 1.5 percent, with the Materials sector leading gains due to rising precious metals prices. The Health Care sector underperformed.
US equities fell 4.2 percent in CAD, marking the steepest quarterly drop since Q2 2022.
Consumer Discretionary and Information Technology sectors declined most, while Energy and Health Care showed solid performance.
International developed markets advanced 7.1 percent in CAD.
Energy and Financials outperformed, while Consumer Discretionary and Information Technology posted negative returns.
Emerging markets gained 3.1 percent in CAD. Communications Services and Consumer Discretionary sectors posted double-digit gains, while Information Technology was the weakest performer.
Canadian economic update
Canada began the quarter on relatively solid footing, with inflation near 2 percent and GDP growth ending 2024 in good health.
However, February inflation rose to 2.6 percent after the expiry of a temporary federal tax break. In March, inflation declined to 2.3 percent.
The economy shed 33,000 jobs in March, the largest single-month drop since January 2022. The unemployment rate increased to 6.7 percent from 6.6 percent in February.
The Bank of Canada (BoC) cut interest rates twice by 25 basis points, lowering the policy rate to 2.75 percent.
The BoC stated that US-imposed tariffs and trade tensions could slow economic growth and increase inflation.
It added that it would “proceed carefully” with further changes, considering upward price pressures and weakening demand.
Global economic and central bank moves
The US economy showed continued disinflation, with March inflation falling to 2.4 percent from 2.8 percent in February.
The unemployment rate rose slightly to 4.2 percent despite gains in non-farm payrolls. The Fed held rates steady at both meetings in the quarter, keeping its benchmark rate at 4.25–4.50 percent.
Chair Jerome Powell said the Fed would adjust policy based on inflation, the labour market, and overall economic conditions.
European markets posted strong results, supported by a major German fiscal shift, which contributed to 30 percent-plus CAD gains in aerospace and defence stocks.
The European Central Bank (ECB) cut rates twice by 25 basis points, bringing its deposit facility rate to 2.5 percent. The ECB stated in March that its policy stance was becoming “less restrictive.”
The Bank of England cut rates to 4.5 percent in February and held steady in March. The Bank of Japan left its rate at 0.5 percent following a January rate hike.
Emerging markets saw positive results. The People’s Bank of China (PBoC) held its one-year and five-year loan prime rates steady for a fifth month, signalling future rate cuts to address economic weakness.
The Central Bank of Brazil increased its Selic rate by 100 basis points to 14.25 percent in March.
Canadian fixed income
The Canadian fixed income market, as measured by the FTSE Canada Universe Bond Index, rose 2.0 percent for the quarter.
Federal bonds outperformed Provincial and Corporate bonds.
Mid-term bonds led gains across duration categories.
Sources: Northern Trust, Bank of Canada, US Federal Reserve, European Central Bank.
