Northern Trust Pension Universe Data: Canadian Pension Plan returns retreat in Q3, pressured by restrictive monetary policy
01 Novembre 2023 - 3:15PM
Business Wire
Canadian Pension Plans lost ground in the third quarter,
generating a median return of -3.7% amidst market and economic
headwinds. The quarterly results were cushioned by healthier
returns in prior periods, resulting in a median year-to-date return
of 1.6%, according to the Northern Trust Canada Universe.
The third quarter was engulfed in a wave of news headlines which
included a downgrade of the U.S. sovereign rating as well as 10
U.S. regional banks, a United Auto Workers (UAW) strike and the
potential for a partial U.S. government shutdown. Each of these
created a brief negative tone which cascaded across global
financial markets. Notwithstanding this backdrop, the most
prominent narrative throughout the period was continued uncertainty
surrounding monetary policy direction due to mixed inflation
readings sparked by escalating oil prices, rising bond yields, and
a robust labor market.
Inflation figures are lower than the acute levels witnessed a
year ago but remain higher than the target levels for many central
banks. Monetary authorities have managed these cross currents of
data by either pausing interest rate hikes, further increasing
rates or a combination of both, resulting in higher interest rates
than what we have witnessed in recent history. Although some data
points signaled signs of resilience across the North American
economy, both Europe and China experienced challenging economic
environments. The combination of uncertainty and high interest
rates resulted in a decline for both equity and bond markets during
the period.
“This past quarter demonstrated how rapidly volatility can
resurface, creating unfavorable market conditions and increasing
pressure on investment portfolios. As monetary policymakers adhere
to their mandates and exercise discipline amid these pockets of
uncertainty, pension plan sponsors also maintained discipline in
challenging environments, affording them the ability to deliver on
their long-term pension promise,” said Katie Pries, President and
CEO of Northern Trust Canada.
The Northern Trust Canada 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 third quarter faced an alignment of macro-economic pressures
that created uncertainty across financial markets. As the price of
oil reached year-to-date highs, it also factored into inflation
readings. This coupled with positive economic data and tight labor
markets caused investor alarm, fearing that interest rates will
remain higher for an extended period of time. In the wake of these
macro tensions, yields continued to climb higher causing a well
punctuated sell-off in bonds and a decline across equity markets.
As a result, both asset classes concluded the quarter in negative
territory.
- Canadian Equities, as measured by the S&P/TSX Composite
Index, retreated -2.2% for the quarter. The Health Care and Energy
sectors posted positive double digit returns, while all remaining
sectors generated negative performance. Communication Services and
Utilities sectors witnessed the weakest results for the
period.
- U.S. Equities, as measured by the S&P 500 Index, posted
-1.2% in CAD for the quarter with three of the 11 sectors
generating positive results. Strong performance was led by Energy
followed by the Communication Services and Financial sectors, while
the Utilities and Real Estate sectors observed the largest decline
for the period.
- International developed markets, as measured by the MSCI EAFE
Index, returned -2.0% in CAD for the quarter. The Energy sector was
the strongest performer followed by Financials and Real Estate
sectors. All remaining sectors generated negative returns with
Information Technology witnessing the largest decline.
- The MSCI Emerging Markets Index declined -0.7% in CAD for the
quarter, with five of the 11 sectors generating positive returns.
The Energy sector was the top performer for the period, while the
Information Technology and the Communication Services sectors
generated the weakest results.
The Canadian economy held up reasonably well and witnessed solid
job growth in the last two months of the quarter, with more than
100,000 jobs added in August and September. The unemployment rate
concluded the period at 5.5%, a slight uptick from 5.4% at the end
of June. Canadian inflation figures edged up higher over the
quarter due to higher transportation and housing costs. Canadian
CPI for September was 3.8% versus 2.8% for June.
The U.S. economy continued to demonstrate signs of strength
supported by a strong labour market amidst inflationary pressures
sparked by higher oil prices. The U.S. Federal Reserve (Fed) hiked
interest rates by 25 bps taking the Federal Funds Target Rate to
5.25% - 5.50%. The Fed continues to monitor its progress to lower
inflation while maintaining a hawkish tone.
International markets posted negative returns for the quarter
amidst a restrictive monetary environment. The European Central
Bank (ECB) continued to battle inflation raising rates by a total
of 50 bps, while the Bank of England (BoE) hiked rates by 25 bps in
an effort to bring inflation sustainably back to their 2.0% target.
The Bank of Japan (BoJ) maintained its key policy rate of -0.10%,
while continuing their yield curve control policy.
Emerging Markets witnessed a modest decline during the quarter,
outperforming their developed counterparts. China continued to
struggle with the global manufacturing slump, a stronger U.S.
dollar and a stressed real estate sector, all of which hampered
equity returns. Meanwhile Brazil lowered its interest rate by 100
bps to 12.75% during the quarter as inflation showed signs of
easing.
The Bank of Canada (BoC) raised interest rates by 25 basis
points to 5% during the quarter. The BoC expects inflation to
remain around 3% for the remainder of 2024 and return to the BoC’s
target of 2% around the middle of 2025. The BoC continues to
maintain a restrictive monetary policy, while it continues to
monitor the economic impact of its rate hiking journey.
The Canadian Fixed Income market, as measured by the FTSE Canada
Universe Bond Index, declined -3.9% for the quarter. Provincial
bonds witnessed the largest decline followed by Federal and then
Corporate bonds. Long-term bonds observed the largest drop posting
a return of -9.5% while Mid-term and Short-term bonds lost -3.7%
and -0.1% respectively.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider
of wealth management, asset servicing, asset management and banking
to corporations, institutions, affluent families and individuals.
Founded in Chicago in 1889, Northern Trust has a global presence
with offices in 25 U.S. states and Washington, D.C., and across 22
locations in Canada, Europe, the Middle East and the Asia-Pacific
region. As of September 30, 2023, Northern Trust had assets under
custody/administration of US$14.2 trillion, and assets under
management of US$1.3 trillion. For more than 130 years, Northern
Trust has earned distinction as an industry leader for exceptional
service, financial expertise, integrity and innovation. Visit us on
northerntrust.com. Follow us on X (formerly Twitter) @NorthernTrust
or Northern Trust Corporation on LinkedIn.
Northern Trust Corporation, Head Office: 50 South La Salle
Street, Chicago, Illinois 60603 U.S.A., incorporated with limited
liability in the U.S. Global legal and regulatory information can
be found at https://www.northerntrust.com/terms-and-conditions.
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Europe, Middle East, Africa & Asia-Pacific: Camilla Greene
+44 (0) 20 7982 2176 Camilla_Greene@ntrs.com
Marcel Klebba + 44 (0) 20 7982 1994 Marcel_Klebba@ntrs.com
US & Canada: John O’Connell +1 312 444 2388
John_O’Connell@ntrs.com
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