RBC Investor & Treasury Services: Defined Benefit Pension Plans Lost Ground In Wake Of Steepest Market Selloff In Recent History

During the first quarter of 2020, the global economy came to a virtual standstill on account of COVID-19 containment measures. Worldwide financial markets sold off, commodity prices plunged and governments and central banks initiated aggressive measures to cushion the blow. Canadian defined benefit pension plans in the RBC Investor & Treasury Services All Plan Universe experienced their steepest decline since 2008, posting a median return of -7.1 per cent for the quarter.

MSCI World Index posted a quarterly return of -13.3 per cent, with growth stocks considerably outperforming value stocks. While all economic sectors experienced negative returns, energy fared the worst (and information technology took the lead). The Canadian dollar weakened against its US counterpart. As such, plans with unhedged exposure to non-Canadian equities were somewhat sheltered from local currency losses.

S&P/TSX Composite Index posted a return of -20.9 per cent for the quarter, wiping out the annual gains from 2019 and significantly underperforming the global market. The impact of the international health crisis was the primary cause, but the dispute over the natural gas pipeline and the Russia-Saudi Arabia oil price war were additional factors.

FTSE Canada Universe Bond Index posted a quarterly return of 1.6 per cent, affording plans some shelter from the losses in equity markets. Following the cuts to interest rates by the Bank of Canada, the yield curve steepened, and short term bonds outperformed their longer term counterparts. There was a noticeable flight to safety as investors sold off riskier investments (FTSE Canada High Yield Index, with returns of -9.0 per cent) and embraced government bonds (FTSE Canada Federal Bond index, with returns of 5.1 per cent).

“It has been an exceptionally difficult period for Canadian pension plans to navigate, as the markets have been experiencing an unprecedented amount of volatility across asset classes,” reported David Linds, Head, Canadian Asset Servicing, RBC Investor & Treasury Services. “However, the substantial monetary and fiscal policy response from governments across the globe gives us room for optimism. While it’s difficult to speculate on what may happen over the short term, we hope these measures will lead to some reawakening of our economic growth in the near future.”