CANADA - A strong domestic currency harmed pension fund returns in the second quarter of 2007, according to RBC Dexia Investor Services.
Within the C$340bn (US$325bn) RBC Dexia universe, domestic equities returned 6.3% in the quarter ended 30 June 2007, supported by market speculation about takeovers and firm commodity prices.
However, RBC Dexia said the dollar's rise against most major currencies prevented most Canadian plans from benefiting from buoyant equity markets outside the country.
Don McDougall, director advisory of services at RBC Dexia, commented: “Currency fluctuations have assumed crucial significance for pension plan sponsors. Foreign stocks now account for about half of the typical pension plan's strategic equity allocation, but most plans do not hedge their foreign currency exposure.”
The company added that despite the 6% rise by the MSCI World Index in local currency terms, this had created a loss of 1.8% for the quarter, once Canadian exchange rates were taken into account.
Over the quarter, RBC Dexia quoted the Canadian dollar as appreciating almost 8% against a basket of world currencies, including 13.2% against the Japanese yen.
In a separate issue, Mercer Human Resource Consulting and Watson Wyatt reportedly said the country’s pension plans were at their best levels for several years. Some of this performance was attributed to a strong domestic equity market.
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