CANADA - Strong returns from domestic equities have helped Canadian pension plans surge ahead of their pre-financial crisis levels of 2008, research by RBC Dexia Investor Services reveals.
The firm, which compiled figures from Canadian pension funds with C$340bn ($341.6bn) in assets under management, said pension assets earned 4.3% in the quarter ending December 2010, improving the full year performance to 10.4%, making this a second consecutive year of double digit returns.
Despite the volatility in the global markets during the past ten years, Canadian pension plans have achieved an average annualised return of 5.4%, global head of risk and investment analytics Fay Coroneos said. "What the last decade has taught us is that diversification and disciplined investing is key over the long run," she added.
Canadian equity markets put in strong performances over the year, with nine out of ten TSX sectors experiencing double digit annual gains. Foreign equities increased 6.3% over the period, but returns suffered due to the strength of the Canadian dollar. The MSCI World index in local currency increased 10% for the year, but was reduced to 5.9% when translated into Canadian dollars.
"Returns were muted by the soaring loonie, which gained significantly against the US dollar and was one of the best performers among major world currencies," said Coroneos.
Meanwhile, domestic bond holdings within Canadian pension plans advanced 7.8% over the year, surpassing the DEX Universe index by 1.1%.
"Long-term bonds, with maturity of over ten years, continue to dominate short-term and mid-term bonds in 2010," said Coroneos. "The growing focus on asset-liability matching has resulted in pension plans shifting into the longer end of the yield spectrum, increasing demand for long-term bonds. In light of this, we believe a governance structure which includes the use of a liability-based benchmark will be of great interest for pension plans in 2011."
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