RBC Investor Services: Canadian DB Pension Plans Achieve 8.2% Return in Q4, Concluding Year with 9.1% Growth

RBC Investor Services (RBCIS) has announced a notable upswing in the financial performance of their Canadian Defined Benefit (DB) pension plans. In the fourth quarter of the fiscal year, these plans attained a median return of 8.2%, culminating in an impressive 9.1% return as of December 31, 2023. This marks a significant rebound from the -10.3% return observed in the previous year of 2022. The analysis encompasses a wide array of client plans spanning both private and public sectors.

Marijana Jovanovic, the Managing Director and Head of Product Development at RBCIS, highlighted the quarter’s performance as the third-best in over two decades. Notable quarters in Q2 2020 and Q2 2009 were also acknowledged. Jovanovic attributed the positive returns in both fixed income and equity markets during Q4 to investor optimism regarding potential near-term interest rate cuts amidst declining inflationary pressures.

She underscored the nuanced landscape, acknowledging potential future inflation stemming from the Red Sea crisis, which introduces uncertainties affecting global trade and supply chains. Additionally, geopolitical tensions, particularly conflicts in the Middle East and Ukraine, were noted as factors influencing plan managers’ strategies to navigate this evolving environment.

Global equities delivered a 7.9% return for the quarter and an impressive 16.3% annual return, albeit trailing behind the MSCI World Index’s 8.7% return for the quarter and 20.5% annual return. Information Technology emerged as the top-performing sector within the benchmark, boasting a 14.6% return for the quarter and an outstanding 49.2% return for the year. Real Estate secured the second spot for the quarter with a solid 14.3% return, while Communication Services claimed the second-highest performing sector for the year with a 41.7% return. Notably, growth stocks significantly outperformed their value counterparts, with the MSCI World Growth index returning 33.3% over the year compared to 8.5% for the MSCI World Value index.

Canadian equities echoed this positive trend, posting a 7.5% return in Q4 (10.9% for the year), closely tracking the 8.1% Q4 return for the TSX Composite Index (11.8% for the year). The divergence in global and Canadian equities performance was primarily attributed to the Canadian market’s lower exposure to the in-favour growth-style stocks.

The Canadian fixed income asset class saw benefits from declining yields and tightening credit spreads, showcasing robust performance with a quarterly return of 10.9% (7.8% over the 12-month period). This outperformed the FTSE Canada Universe Bond Index, which returned 8.3% and 6.7% respectively. Long-term bonds, particularly sensitive to interest rates, stood out with a 14.8% return for the quarter and a commendable 9.5% return over the year. Conversely, short-term bonds within the benchmark returned 4.1% for the quarter and 5.0% for the year.

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