Northern Trust Pension Universe Data: Canadian Pension Plan Returns Advanced in Q2 as Global Equities Gained Momentum
The second quarter marked a pivotal shift in monetary policy to a less restrictive tone in some developed regions, led by the
Financial markets were challenged with volatility early in the period as geopolitical tensions mounted, combined with the release of stronger economic data supportive of persistent inflation. Despite the uncertainty, global equities marched higher throughout the quarter, led by emerging markets, concluding the period with attractive returns. Although Canadian equities posted a modest decline as pockets of softer economic data emerged, the Canadian bond market benefited from the BoC interest rate cut, resulting in a rebound into positive territory for the quarter. The current divergence in major central bank policies coupled with the Federal Reserve’s (Fed) consistent messaging regarding the direction of interest rates led to a modest strengthening of the
“As we conclude the first half of 2024, a theme of sustainability permeated across the globe. We have seen it through central bank actions as policymakers seek a sustainable path of inflation in an effort to normalize monetary policy. This theme continues to echo across the Canadian pension plan landscape as plan sponsors demonstrate resilience and agility while navigating the economic elements of high interest rates, persistent inflation and waves of volatility,” 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.
Despite a challenging economic backdrop in the second quarter, corporate earnings remained strong and investor optimism prevailed, leading to solid returns for global equities for the period. Although the Canadian equity market witnessed weaker results relative to its global peers, the Canadian bond universe welcomed the first interest rate cut by the
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Canadian Equities , as measured by the S&P/TSX Composite Index, declined -0.5% for the quarter. The Materials and Consumer Staples sectors were the top performers for the period.The Health Care sector posted the weakest performance followed by the Real Estate and Information Technology sectors. -
U.S. Equities , as measured by the S&P 500 Index returned 5.4% in CAD for the quarter, with the Information Technology and Communication Services sectors leading performance with double digit returns. The Materials, Industrials, Energy, Financials and Real Estate sectors retreated during the period. - International developed markets, as measured by the MSCI EAFE Index, generated 0.9% in CAD for the quarter. Most sectors observed positive returns led by the Health Care and the Financials sectors, while the Consumer Discretionary and Real Estate sectors were the most notable laggards during the period.
- The MSCI Emerging Markets Index advanced 6.3% in CAD for the quarter. Most sectors achieved positive returns with the Information Technology sector leading the index with strong performance, while the Health Care, Consumer Staples and the Materials sectors produced negative returns for the period.
The Canadian economy witnessed some early signs of slower economic growth, disinflationary pressures along with softening employment. Unemployment hit its highest level since early 2022, rising to 6.4% in June, up from 6.1% in March. Although inflation nudged higher in May relative to the previous month, the most recent year over year figure in June of 2.7% highlighted that Canadian inflation continues to cool.
The
International markets observed progress in efforts to bring inflation closer to central bank targets. The
Emerging markets gained momentum during the second quarter, outperforming developed markets. Much of the outperformance was attributed to investor interest in the AI/Chips space. The People’s
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The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index, generated a gain of 0.9% for the quarter. Corporate bonds outpaced Federal and Provincial bonds with all three segments generating positive performance. All bond durations witnessed gains for the quarter, with short-term bonds leading mid and long-term bonds.
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