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RBC Investor & Treasury Services: Defined benefit pension plans lost ground in wake of steepest market selloff in recent history

TORONTO, April 29, 2020 - 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.”

Lowest median returns in the last 25
years (based on peer universe data)

 

All Plan Universe - recent median returns

Period

Return
(%)

 

Period

Return
(%)

Period

Return (%)

Q3 2008

-8.2

 

Q1 2020

-7.1

Q1 2018

0.2

Q3 1998

-7.9

 

Q4 2019

2.0

Q4 2017

4.4

Q1 2020

-7.1

 

Q3 2019

1.7

Q3 2017

0.4

Q3 2002

-5.9

 

Q2 2019

2.7

Q2 2017

1.4

Q3 2011

-4.6

 

Q1 2019

7.2

Q1 2017

2.9

Q1 2003

-4.1

 

Q4 2018

-3.5

Q4 2016

0.5

Q2 2002

-3.9

 

Q3 2018

0.1

Q3 2016

4.2

Q4 2018

-3.8

 

Q2 2018

2.2

Q2 2016

2.9

About the RBC Investor & Treasury Services All Plan Universe
For the past 30 years, RBC Investor & Treasury Services (RBC I&TS) has managed one of the industry’s largest and most comprehensive universes of Canadian pension plans. The “All Plan Universe” currently tracks the performance and asset allocation of a cross-section of assets under management across Canadian defined benefit (DB) pension plans, and is a widely-recognized performance benchmark indicator. The RBC Investor & Treasury Services “All Plan Universe” is produced by RBC I&TS’ Risk & Investment Analytics (R&IA) service. R&IA work in partnership with best-in-class technology to deliver independent and cost effective solutions designed to help institutional investor clients monitor investment decisions, optimize performance, reduce costs, mitigate risk and increase governance capability.

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About RBC Investor & Treasury Services
RBC Investor & Treasury Services (RBC I&TS) is a specialist provider of asset services, custody, payments and treasury and market services for financial and other institutional investors worldwide, with over 4,700 employees in 16 countries across North America, Europe and Asia. We deliver services which safeguard client assets, underpinned by client-centric digital solutions which continue to be enhanced and evolved in line with our clients’ changing needs. Trusted with CAD 4.3 trillion in client assets under administration, RBC I&TS is a financially strong partner with among the highest credit ratings globally.

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For more information, please contact:
Ylana Kurtz, +1 416 348 2330