Pension funds post strong returns in 2017

par The IJ Staff | January 25 2018 11:30AM

Photo: Freepik

Diversified pooled fund managers posted a median return of 3.9 per cent before management fees in Q4 2017 and a median return of 8.6 per cent for the whole year, according to Morneau Shepell’s Performance Universe of Pension Managers' Pooled Funds report for Q4 2017, which was released Jan. 24.

"Stimulated by strong and synchronized global economic growth, stock markets rose to record levels in 2017. The Canadian stock market did not do as well as in 2016, but still grew 9.1 per cent. U.S. equities continued to perform well and the S&P 500 Index posted a 13.8 per cent return in Canadian dollars. Emerging market equities outperformed all others equity markets, with the MSCI Emerging Markets Index returning 28.7 per cent in Canadian dollars. Bond returns were modest in 2017, at about 3 per cent for the market as a whole," said Jean Bergeron, partner responsible for the Morneau Shepell Asset & Risk Management consulting team.

Improved solvency

The strong market performance enabled pension funds to improve their solvency during 2017, says the report. "The solvency ratio for an average pension plan improved by 5 to 7 per cent during the year," says Bergeron.

Underperformed benchmark

During the fourth quarter of 2017, diversified pooled fund managers underperformed the benchmark. “In effect, the median return (3.9 per cent) for these managers was 0.5 per cent lower than the 4.4 per cent return of the benchmark portfolio (with an allocation of 55 per cent in equity and 45 per cent in fixed income) used by many pension funds,” says the report. The median pension fund return of 8.6 per cent was 0.3 per cent lower than the benchmark portfolio.