Geo-political climate, interest hikes and
other economic concerns weigh on performance
TORONTO, July 29,
2022 /CNW/ - Canadian pension plans delivered
negative returns in public market asset classes across the board
this past quarter, according to the RBC I&TS All Plan Universe.
Global economic health concerns, stock market selloffs and rising
bond yields weighed heavily on defined benefit (DB) pension plan
assets, which decreased by 8.6% for the second quarter of 2022,
bringing year-to-date total returns to -14.7%.
This was the most significant decline since Q3 2008, when assets
also fell by 8.6%, at the time breaking the record for the lowest
quarterly return RBC had ever reported since it began tracking
Canadian DB plan performance and asset allocation in 1994.
"Uncertainty in the global economic landscape – particularly
surrounding the war in Ukraine,
substantial inflation, higher interest rates imposed by the central
banks across the globe and a new strain of Covid-19 – contributed
to this outcome," said Niki Zaphiratos, Managing Director, Asset
Owners, RBC Investor & Treasury Services.
"The uptick of long-term bond yields, however, actually improved
plans' solvency ratios," continued Zaphiratos. "While this is good
news for plan sponsors, investors need to remain cautious, given
economists' warnings around the prospects for more interest rate
hikes over the second half of the year and the resultant negative
impact on the global economy."
Global equities lost 12.2% for Canadian plans in Q2 and were
down 18.5% on a year-to-date basis. In comparison, the MSCI World
Index returned a somewhat lower -13.4% over the quarter, with
notable weakness in sectors such as consumer discretionary
(-21.3%), information technology (-19.2%) and communication
services (-16.8%). There was a significant spread in performance of
nearly 10% between global growth and value stocks over the quarter.
The MSCI World Growth index plummeted -18.6% in Q2 (-27.3% YTD),
whereas the MSCI World Value index saw a more moderate decline of
-8.7% for the quarter (-10.3% YTD).
Canadian equities kept pace with their global counterparts and
again outperformed the benchmark, losing 11.3% for the quarter
(-8.1% YTD). The TSX Composite Index lost 13.2% over the quarter
(-9.9% YTD).
"Though the Canadian equity market has benefitted from a large
exposure to energy stocks (26.2% year-to-date), it lost ground over
the quarter, as sectors such as financials and materials were
beaten down due to concerns over high interest rates and slow
economic growth," commented Zaphiratos.
Plans returned -9.8% over the quarter in the Canadian fixed
income asset class and were down 19.0% on a year-to-date basis. As
the central banks continued to move away from their
ultra-accommodative policies, yields rapidly increased across the
curve. Within the FTSE Canada Universe Bond Index, the long term
bonds segment saw the highest decline, with the benchmark FTSE Long
Bond index returning -11.8% (-22.1% YTD), while the short term
bonds segment returned -1.5% (-4.4% YTD). Corporate bonds fared
better than their government equivalents.
Historic performance
Period
|
Median return
(%)
|
Period
|
Median return
(%)
|
Q2 2022
|
-8.6
|
Q1 2020
|
-7.1
|
Q1 2022
|
-5.5
|
Q4 2019
|
2.0
|
Q4 2021
|
4.5
|
Q3 2019
|
1.7
|
Q3 2021
|
0.6
|
Q2 2019
|
2.7
|
Q2 2021
|
4.4
|
Q1 2019
|
7.2
|
Q1 2021
|
-0.2
|
Q4 2018
|
-3.5
|
Q4 2020
|
5.4
|
Q3 2018
|
0.1
|
Q3 2020
|
3.0
|
Q2 2018
|
2.2
|
Q2 2020
|
9.6
|
Q1 2018
|
0.2
|
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About the RBC Investor &
Treasury Services All Plan Universe
RBC Investor & Treasury Services has managed one of the
industry's largest and most comprehensive universes of Canadian
pension plans for more than 30 years. The All Plan Universe, a
widely recognized performance benchmark indicator, tracks the
performance and asset allocation of a cross-section of assets
across Canadian defined benefit pension plans. The All Plan
Universe is produced by RBC Investor & Treasury Services' Risk
& Investment Analytics service, which delivers independent and
cost effective solutions that help institutional investors monitor
investment decisions, optimize performance, reduce costs, mitigate
risk and enhance governance.
About RBC Investor & Treasury
Services
RBC Investor & Treasury Services (RBC I&TS)
provides asset and payment services to corporate investors and
financial institutions globally. Trusted with CAD 4.4 trillion in assets under administration,
clients are at the heart of our service offering. As a financially
strong partner, our focus is on safeguarding client assets as we
leverage data and technology solutions to deliver meaningful
insights, simplify our clients' operations and support their
growth.
SOURCE RBC Investor & Treasury Services