Canadian defined benefit pension plans posted “hard-hitting” losses last year amid volatile global economic conditions, according to a new survey RBC Investor & Treasury Services (I&TS).
A survey released Tuesday found that the annual median return for pension assets within the RBC I&TS universe in 2022 was -10.3 per cent – the lowest since the 2008 recession, when the annual median return was -15.9 per cent.
Those results came despite a positive fourth quarter that saw pension assets return 3.8 per cent in the last three months of the year.
“Pensions gained traction toward the end of 2022 despite the ongoing volatility caused by embedded inflation and subsequent higher interest rates imposed by central banks,” said Niki Zaphiratos, managing director of asset owners for RBC Investor & Treasury Services, in the report.
“However, this was not enough to offset the first two quarters of heavy losses.”
The report said persistently high inflation and rising interest rates contributed to last year’s volatility, as yields rose “across the spectrum.”
There was widespread weakness across the market, the report said, but “inflation-sensitive, longer-duration bonds were the most affected.”
Canadian pensions “had their largest annual fixed income decline in more than 30 years,” the report said, losing 16.8 per cent over the course of 2022 compared with a -11.7 per cent return for the FTSE Canada Bond Index.
“It was a challenging year for pension asset managers,” Zaphiratos said, noting that “most pensions ended the quarter in a better position” after bond yields rose rapidly and led to lowered pension liabilities.
Foreign equities were the top-performing asset class in the fourth quarter, RBC said, though the full-year results stood at -11.3 per cent.
Domestic stocks were the top performing asset class for the course of the entire year, while developed markets generated “healthy local currency returns” in the fourth quarter.
Value stocks outperformed growth stocks in 2022 and “finished the year well ahead of their growth counterparts.”
“In the next few months, plan sponsors will need to be attentive to risk factors such as the economic impact of the central banks’ actions, ongoing geopolitical tensions and ongoing efforts to contain the COVID virus outbreak in certain emerging markets,” Zaphiratos said.