Pension plans ride hot market

Best performance since third quarter of 2010

OTTAWA – Hot foreign equity markets in the first quarter of 2012 pushed Canadian pension plans to their best performance in a year and a half, according to a report released Friday.

Defined-benefit pension plans earned 4.5 per cent in the first quarter – the biggest gain in the category since the third quarter of 2010, RBC Dexia Investor Services said in the report.

“Even with some levelling off in March, Canadian pension plans continued to build on the momentum from the fourth quarter of 2011,” Scott Macdonald, RBC Dexia’s head of pensions, said in a statement.

“The appetite for equities gained steam, reflecting a renewed sense of tempered optimism and the continued need for pension plans to seek higher returns through increased equity allocation.”

The study was based on a sample of 45 defined-benefit plans out of RBC Dexia’s database of 127 pension funds.

RBC Dexia – a joint venture of Royal Bank of Canada and European bank Dexia – said the foreignstock portion of defined-benefit pensions in Canada earned 9.9 per cent in the quarter, outperforming the general world market by 0.4 percentage points.

Strong performances in the consumer discretionary, financials and information-technology sectors led the gains in foreign equities, said Macdonald.

“However, the Canadian dollar also performed well, taking away performance from Canadian DB plans as the MSCI world index returned 11.2 per cent in local currencies.”

Canadian stocks in defined-benefit pension plans earned 5.6 per cent, as strong gains in January and February counter-balanced a “lacklustre” March for a second consecutive positive quarter.

They beat the overall performance of the Toronto Stock Exchange’s S&P/TSX composite index by 1.2 percentage points. Bonds within these pension plans underperformed with a 0.2-per-cent decline, RBC Dexia said.