Northern Trust Pension Universe Data: Canadian Pension Plan returns witness sharp decline as stock markets tumble during the second quarter
The second quarter of 2022 proved to be a tumultuous period for the financial markets. As supply chains found pockets of recovery, a lingering backdrop of tight labor markets, higher wages and soaring food and energy prices continued to stoke inflation, driving it to decade highs around the globe. Many major central banks, led by the
“The most recent quarter served as a reminder of how rapidly markets can shift course. We saw extreme market declines in the early days of the pandemic and now we are experiencing it again in the face of changing monetary policy. Although rising interest rates create market uncertainty causing a decline in pension assets, higher rates improve pension funding ratios and the overall financial health of pension plans, serving as a cushion through this volatile period,” said
The Northern Trust Canada universe tracks the performance of Canadian institutional defined benefit plans that subscribe to performance measurement services as part of Northern Trust’s asset service offerings.
Persistent inflation and policymakers’ attempts to bring stability to prices has been a consistent theme over the last few months. The magnitude and pace of central bank actions to rein in inflation this quarter soured investor sentiment and sparked fears of an imminent recession. Aggressive interest rate hikes led to significantly higher rates across the yield curve over the recent period, propelling bond returns into negative territory. As financial markets adjusted to higher interest rate movements, stock markets around the globe also witnessed sharp declines for the quarter.
Canadian Equities, as measured by the S&P/TSX Composite Index, declined -13.2% for the quarter. All sectors were in negative territory, with Health Care, Information Technology and Materials sectors posting the weakest returns.
U.S. Equities, as measured by the S&P 500 Index, fell -13.4% in CAD for the quarter. All sectors witnessed negative returns, with the Consumer Discretionary sector posting the largest decline, while the Consumer Staples, Energy and Utilities sectors lost the least for the period.
- International developed markets, as measured by the MSCI EAFE Index, returned -11.5% in CAD for the quarter. All sectors witnessed negative returns for the period, with the Information Technology sector being the largest detractor for the period. The Energy sector held up reasonably well with only a modest decline for the quarter.
- The MSCI Emerging Markets Index returned -8.4% in CAD for the quarter. The Consumer Discretionary sector posted a healthy positive return, while all remaining sectors witnessed negative results, with the Information Technology sector producing the sharpest decline for the period.
The Canadian economy witnessed a record low unemployment rate of 4.9% in June, down from 5.3% at the end of March. The Canadian inflation rate continued to climb, reaching 7.7% in May (year over year), up from the 6.8% posted in April. Canada’s high inflation backdrop continued to be boosted by higher gas prices and service costs throughout the quarter.
International markets were challenged during the quarter with elevated inflation levels. Reduction in gas supplies from
Emerging markets declined for the quarter, but to a lesser degree than developed counterparts. Loosening restrictions on giant tech companies coupled with easing of Covid restrictions brought comfort to investors as Chinese equities rose during the quarter. The Chinese central bank refrained from cutting its key policy interest rate, while the Russian central bank cut its key interest rate to 9.5%, a level observed prior to the invasion of
The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index, returned -5.7% for the quarter. Provincial bonds witnessed the largest decline, followed by Corporates and Federals. During the quarter, long term bonds posted the largest decline, followed by mid-term and short term segments of the fixed income market.
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