Canadian DB pension plans return -10.3% in 2022

TORONTO, January 31, 2023 – Canadian defined benefit (DB) pension plans posted hard-hitting losses in 2022 despite a positive final quarter, according to the latest survey from RBC Investor & Treasury Services (I&TS).

Within the I&TS All Plan universe, pension assets returned 3.8% over the last three months of the year, bringing the annual median return to -10.3%, the lowest observed since the 2008 financial crisis, which saw an annual median return of -15.9%.

“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, Asset Owners, for RBC Investor & Treasury Services. “However, this was not enough to offset the first two quarters of heavy losses.”

Foreign equities, the top-performing asset class in Q4, returned 9.7% in the quarter, bringing full-year results to -11.3% – ahead of the MSCI World Index, which returned -12.2%. Over the quarter, a majority of developed markets generated healthy local currency returns. In addition, currency gains outside of the US market further boosted returns for unhedged portfolios (MSCI EAFE Index CAD 15.7% versus MSCI EAFE Local 8.7%). Value stocks outperformed growth stocks in the quarter and finished the year well ahead of their growth counterparts (MSCI World Value 0.3% versus MSCI World Growth -24.1%).

Canadian equities trailed their global counterparts over the quarter and returned 6.3%, versus 5.9% for the TSX Composite Index. Over the year, domestic stocks represented the top performing asset class (returning -3.6% in the All Plan Universe versus -5.8% for the TSX Composite Index), attributable to a large exposure to commodity stocks.   

Canadian pensions had their largest annual fixed income decline in more than 30 years, losing

16.8% over the 12-month period, compared to the -11.7% return for the FTSE Canada Bond Index. As central banks enacted restrictive monetary policy to tame surging inflation, yields rapidly rose across the spectrum. The weakness spread across the market, but inflation-sensitive, longer-duration bonds were the most affected. The FTSE Canada Long Overall Bond Index declined 21.8%, while FTSE Canada Short Overall Bonds were down 4.0%.

“It was a challenging year for pension asset managers,” noted Zaphiratos. “Both equities and fixed income asset classes, which typically offset each other, experienced losses. However, the rapid rise in bond yields resulted in the lowering of pension liabilities – and most pensions ended the quarter in a better position.”

Zaphiratos continued: “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.”

Historic performance

Period Median return (%) Period Median return (%)
Q4 2022 3.8 Q3 2020 3.0 
Q3 2022 0.5 Q2 2020 9.6
Q2 2022 -8.6 Q1 2020 -7.1
Q1 2022 -5.5 Q4 2019 2.0
Q4 2021 4.5 Q3 2019 1.7
Q3 2021 0.6 Q2 2019 2.7
Q2 2021 4.4 Q1 2019 7.2
Q1 2021 -0.2 Q4 2018 -3.5
Q4 2020 5.4 Q3 2018 0.1

About the RBC Investor & Treasury Services All Plan Universe

RBC Investor & Treasury Services has managed one of the industry’s largest and most comprehensive universes of Canadian pension plans for more than 30 years. The All Plan Universe, a widely recognized performance benchmark indicator, tracks the performance and asset allocation of a cross-section of assets across Canadian defined benefit pension plans. The All Plan Universe is produced by RBC Investor & Treasury Services’ Risk & Investment Analytics service, which delivers independent and cost effective solutions that help institutional investors monitor investment decisions, optimize performance, reduce costs, mitigate risk and enhance governance.

About RBC Investor & Treasury Services

RBC Investor & Treasury Services (RBC I&TS) provides asset, payment and treasury services to financial institutions and asset owners worldwide. We are a leader in Canadian cash management and transaction banking services. Trusted with nearly 4 trillion in assets under administration, our focus is on safeguarding client assets and supporting our clients’ growth.

For more information, please contact:
Ylana Kurtz, 1 416 348 2330