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RBC Investor Services Survey: Global Economy and European Debt Fears Dampen Q2 Pension Returns

TORONTO, July 31, 2012 - Canadian pension plans gave back some of their first quarter returns in Q2 2012, as concerns over the European debt crisis and a weakening global economy pushed Canadian equities lower, according to the latest survey from RBC Investor Services, which maintains the industry's most comprehensive universe of Canadian pension plans and money managers.

Within the $410 billion RBC Investor Services All Plan universe, Canadian defined benefit (DB) pensions fell 1.1 per cent in the quarter ending June 30, 2012 against gains of 4.5 percent in the first quarter.

Canadian equities were the worst performing asset class for the quarter, with the S&P/TSX Composite falling by 5.7 percent in Q2, wiping out its first quarter gains of 4.4 percent to end 1.5 percent lower over the first half of the year. Pensions' foreign equity investments underperformed the MSCI World (CAD) by 0.4 percent, reversing a trend of positive returns for the past two quarters, while the MSCI World index fell 3.2 percent in Canadian dollars compared to 4.3 percent in local currency.

"After the sustained rally in the previous two quarters, pension plans felt the heat of the ongoing saga in Europe and the resulting domino effect on Canadian and foreign equities," said Scott MacDonald, Head, Pensions, Insurance, and Sovereign Wealth Strategy for RBC Investor Services. "The weakening of the Canadian dollar lessened the impact of falling foreign equities on Canadian DB plans, but the continuing downward pressure on stock prices is eroding the gains of plans seeking higher returns from equities."

Within the S&P/TSX Composite, seven of 10 sectors declined in the second quarter. Information Technology fell the most, down 17.8 per cent, while two of the largest sectors, Energy and Materials, fell by 7.3 per cent and 10.8 per cent respectively due to concerns about global demand.

Overall, pensions' Canadian equity holdings outperformed the S&P/TSX Composite by 0.5 per cent, but domestic bonds were the best performing asset class for the quarter, with the median Pension return of 2.4 percent marginally outperforming the DEX universe by 0.1 percent. Long-term bonds were up 4.0 percent, making them the best performing sector in the DEX Universe for the second quarter.

"Pension plans managed to outperform the S&P/TSX Composite Index in the second quarter, being underweight in Energy and Materials, two of the largest sectors that underperformed the S&P/TSX Composite," added MacDonald. "But continued worries surrounding Europe and the slowdown in the Chinese and US economies had investors seeking safety in government bonds once again."

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