Pension funds give up Q1 gains in Q2 as turmoil in Europe pushes stocks lower

TORONTO – Canadian defined benefit pension plans saw their investments slip 1.1 per cent in the second quarter, giving up some of their gains from the first three months of the year, a new report by RBC Investor Services says.

The firm says concerns over the European debt crisis and a weakening global economy pushed Canadian stocks lower, while bonds posted the strongest gains.

Canadian defined benefit pension funds within the RBC Investor Services All Plan universe had gained 4.5 per cent in the first quarter.

Domestic bonds were the best performing asset class for the second quarter, with the median pension fund returning 2.4 per cent, marginally outperforming the DEX universe by 0.1 per cent.

Canadian stocks were the worst performing asset class for the second quarter as the S&P/TSX composite fell 5.7 per cent in the quarter, while the funds outperformed the index by 0.5 per cent.

Foreign equity investments by pension funds underperformed the MSCI World index by 0.4 per cent, while the index fell 3.2 per cent in Canadian dollars.

“Pension plans managed to outperform the S&P/TSX composite index in the second quarter, being underweight in energy and materials, two of the largest sectors that underperformed the S&P/TSX Composite,” said Scott MacDonald, head of pensions, insurance and sovereign wealth strategy for RBC Investor Services.

“But continued worries surrounding Europe and the slowdown in the Chinese and US economies had investors seeking safety in government bonds once again.”