Canada’s DB plans gain 9.4% in 2012

Global equity, real estate drive returns.

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inch upDespite some heightened volatility in the fourth quarter of 2012, Canadian pension plans were buoyed by global equity and real estate returns, according to data from RBC Investor Services.

Within the $410-billion RBC Investor & Treasury Services All Plan Universe—the industry’s most comprehensive universe of Canadian pension plans—Canadian DB plans listed in RBC’s All Plan Universe gained 2.5% in the quarter ending Dec. 31, 2012, compared to 3.2% in the previous quarter. The median 2012 return for Canadian DB plans was 9.4%.

“With overall 2012 returns approaching double digits, Canadian defined benefit pension plans were able to breathe a little easier even with only modest returns in the fourth quarter,” said Scott MacDonald, head, pensions, insurance and sovereign wealth strategy, with RBC Investor Services. “Continued stimulus by central banks in Europe, Japan and the U.S. offered hope for the global economy, while here in Canada, lower global demand for commodities dampened Canadian equity returns. Despite this weakness, other contributing sectors finished the year strong, helping Canadian equity performance for the quarter to remain positive.”

Canadian equities returned 1.7% in Q4, bringing the S&P/TSX performance up to 7.2% for the year. Eight out of 10 sectors represented in the S&P/TSX Composite had positive gains in the fourth quarter, with consumer staples and information technology up 9.2% and 7.3%, respectively. Financials continued to be a primary Canadian equity driver as the sector rose 6.3% in Q4, ending the year up 17.6%.

Canadian pensions’ Canadian equity holdings outperformed the S&P/TSX Composite for the quarter, returning 3.1%.

Despite concerns over the European crisis, the U.S. election and weakening corporate earnings growth, Canadian dollar returns for the MSCI World Index stood at 3.7% for the quarter and 13.3% on the year. Canadian pensions outperformed the benchmark MSCI World Index by 0.8% in the quarter and 1.4% on the year.

Real estate also gave Canadian pensions a lift, delivering double-digit returns in 2012.

Canadian DB plans matched the benchmark DEX Universe Bond Index, returning 0.3% for the fourth quarter, but were able to outperform the benchmark on the year by 0.9%.

“Within the DEX Universe Index, the corporate segment continued to outperform the government segment as managers were confident enough to take on additional risk for the potential yield.”

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