Market sentiment soured significantly in September due to several factors. As a result, most of the gains made by Canadian defined benefit (DB) plans were reversed, the RBC Investor & Treasury Services All Plan Universe reports.
DB plans returned 0.6 per cent for the three months ended September 30, 2021, bringing the year-to-date results to 4.5 per cent.
By comparison, the median Canadian DB plan return was 4.4 per cent in the second quarter of 2021. Year-to-date results were 3.5 per cent.
Delta variant a hazard
Canadian pension plan returns rose slightly in the third quarter, despite global supply chain disruptions, higher input costs and mounting labour shortages, RBC Investor & Treasury Services said.
“Market volatility returned in September on account of global concerns over the impact of labour shortages, strained supply chains and rising consumer prices,” says Niki Zaphiratos, Managing Director and Head, Asset Owners, Client Coverage, Canada for RBC Investor & Treasury Services. She links these factors to the Delta variant.
Within the RBC Plan Universe, Canadian equities achieved modest gains of 1.5 per cent in Q3. U.S. equities were flat, with the S&P/TSX Composite Index advancing by a mere 0.2 per cent during Q3. Foreign equities returned 1.4 per cent.
The RBC Plan Universe reports that fixed income securities declined slightly, posting a loss of 0.8 per cent for the quarter. The nine-month loss was 5.7 per cent. “Government bond yields rose in September, while credit spreads remained generally unchanged. As a result, corporate bonds outperformed government bonds and longer duration bonds underperformed their shorter duration counterparts,” RBC says.
Inflationary pressures
“Investors are watchful in anticipation of a debt limit showdown in December and the ongoing struggles to reach an infrastructure deal and funding agreement in the US," says Niki Zaphiratos.
She notes that inflationary pressures are causing central banks to move away from some ultra-loose monetary policies. “In response, plan managers have been increasingly investing in a greater variety of asset classes such as private equity, real estate and infrastructure that can hedge against inflation,” the managing director and head explains.
Second quarter hard to follow
The results for the third quarter of 2021 contrast sharply with those of the previous quarter. During Q2, equity markets continued to rise, “bolstered by the accelerated rollout of Covid-19 vaccines and reopening of the global economy,” RBC says. Equity performance more than offset sluggish bond performance in the first half of the year.
