Northern Trust Pension Universe Data: Canadian Pension Plans Harness the Strength of Equity Returns During Third Quarter 2020

·6-min read

Strong global equity markets continue to augment pension plan returns with Canadian defined benefit plans returning 3.2% for the third quarter of 2020, according to the Northern Trust Canada Universe.

Equity markets navigated through pockets of volatility, maintaining resilience and closing the quarter in positive territory. Financial markets appeared to shrug off fears perpetuated by the coronavirus pandemic and recent sell-off in technology stocks, and focus on progress in vaccine development and hopes for further stimulus relief. Policymakers around the world continued to deploy the financial tools necessary in an effort to bridge economic gaps as global economies slowly regained strength while transitioning through the reopening phase.

"The global pandemic has undoubtedly accelerated the pace of change for many defined benefit pension plans over the course of recent months; namely in the form of financial, regulatory as well as technology transformation. As pension plan sponsors embrace this evolution of change and the adaptation to a virtual work environment, they remain vigilant on preserving plan assets while generating investment results supportive of long-term sustainability and growth," said Katie Pries, President and CEO of Northern Trust Canada.

The Northern Trust Canada Universe tracks the performance of Canadian institutional investment plans that subscribe to performance measurement services as part of Northern Trust’s asset service offerings.

Once stressed by the economic impact inflicted by the spread of the coronavirus, equity markets shifted focus during the third quarter to the power of government-funded stimulus, a dominating theme prevalent in today’s environment. The convergence of accommodative monetary policy and expansive fiscal policy continued to drive global financial markets in a positive direction. These unprecedented stimuli combined with progress in vaccine development continued to propel further optimism, setting a cautiously positive tone for financial markets.

  • Canadian Equities, as measured by the S&P/TSX Composite Index, generated a return of 4.7% for the quarter, with all sectors posting gains with the exception of the Health Care and Energy sectors.

  • U.S. equities continued to extend solid gains with the S&P 500 Index recording a new all-time high in September and generated a robust 6.8% in CAD for the quarter. The majority of sectors posted healthy gains, while the real estate sector remained flat and the Energy sector retreating as a result of weaker oil prices.

  • International developed markets, as measured by the MSCI EAFE Index, posted a 2.9% return in CAD for the quarter. With the exception of Energy and Financials, all sectors rose during the quarter.

  • The MSCI Emerging Markets Index produced a solid result with a 7.6% return in CAD during the third quarter. Consumer Discretionary and Information Technology sectors led the way with attractive double digit returns, while Utilities, Energy and Financials remained the weakest segments.

The Canadian economy showed signs of progress as witnessed by an improvement in economic data, including monthly GDP growth. The labour market continues to be the beneficiary of government support programs as noted by the steady increase in jobs throughout the quarter, with the unemployment rate settled in at 9.0% in September from 12.3% in June. This economic backdrop brought further support to the Canadian dollar, despite an uptick in coronavirus cases and weaker oil prices during the quarter.

The U.S economy was supported by positive fundamentals including stronger manufacturing and housing data as well as improving employment numbers. The unemployment rate fell to 7.9% in September from 11.1% in June. The U.S. Federal Reserve (The Fed) maintained the federal funds target range at 0 – 0.25% while updating its inflation target to a 2% average rate.

International markets also witnessed a gradual improvement in labour markets. Germany and the UK continued to exhibit signs of recovery while other countries have reinstituted lockdowns due to the spike in coronavirus cases. The European Central Bank (ECB) and the Bank of England (BoE) continue to maintain an accommodative stance, leaving monetary policy unchanged. The European Union (EU) introduced additional stimulus relief measures in effort to bring further aid to the economy. In the Asia Pacific region, the Bank of Japan (BoJ) also followed suit maintaining its monetary policy stance during the quarter.

Emerging markets performed well during the quarter, demonstrating signs of economic recovery despite battling major pockets of coronavirus outbreaks. Consistent with other major central banks, China’s central bank as well as the Reserve Bank of India left interest rates unchanged. Brazil’s central bank lowered its benchmark interest rate to 2.0%, bringing further support and stimulus to the economy.

The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index returned a modest 0.4% return for the quarter. Corporate bonds outperformed both the Federal and Provincial issuers while Mid-term bonds outperformed the Short- and Long-term segments of the universe. The Bank of Canada (BoC) maintained its overnight interest rate at 0.25%, while continuing its pledge to purchase government bonds on a weekly basis.

Northern Trust – Canada

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Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 22 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2020, Northern Trust had assets under custody/administration of US $13.1 trillion, and assets under management of US $1.3 trillion. For more than 130 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Please visit our website or follow us on Twitter.

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