Northern Trust Pension Universe Data: Canadian Pension Plan Returns Boosted by Robust Financial Markets During the Third Quarter

Canadian pension plans benefited from a strong finish to the quarter by both stocks and bonds, according to the Northern Trust Canada Universe. The median Canadian Pension Plan returned 4.8% for the quarter and 8.4% year-to-date as of September 30.

The Northern Trust Canada Universe tracks the performance of Canadian institutional defined benefit plans that subscribe to performance measurement services as part of Northern Trust’s asset service offerings.

A number of events triggered volatility in the third quarter, including elections in the UK and France, the Bank of Japan’s hawkish policy narrative, periodic selloffs across the technology sector and pockets of weak economic data, all of which weighed on investor confidence. Notwithstanding this backdrop, most major central banks, the curators of monetary policy, continued to focus on the fundamentals underpinning the economy, particularly inflation. A commonality across most developed regions was the trending decline in inflation, leading monetary policymakers to maintain or embark upon a less restrictive tone.

The U.S. Federal Reserve (Fed), gaining confidence in its progress to combat high inflation, initiated a 50-basis point rate cut as it begins to unwind its restrictive policy. Although the financial markets endured pockets of volatility during the period, both equities and bonds welcomed this policy shift along with the announcement of China’s massive stimulus package and concluded the quarter with solid positive performance.

“As major central banks around the globe seek a path to neutrality, Canadian pension plans remained in solid financial form supported by healthy solvency ratios. Throughout the interest rate journey, plan sponsors exercised vigilance through the lens of balancing risks and adopting sound strategies that position plan investments for a successful and sustainable retirement future,” said Katie Pries, President and CEO of Northern Trust Canada.

During the third quarter impressive returns across both stocks and bonds were observed as the headwinds felt by monetary policy showed signs of moderating. Equity markets marched higher on the heels of the Fed’s first interest rate cut since 2020, with Canadian equities leading the path and posting a double-digit return. This positive sentiment echoed across the Canadian bond market as yields moved lower with the Canadian Bond Universe closing the period with strong results.

• Canadian Equities, as measured by the S&P/TSX Composite Index, advanced 10.5% for the quarter. All sectors within the index posted positive performance, led by Real Estate followed by Financials, Utilities and Health Care sectors.
• U.S. Equities, as measured by the S&P 500 Index, returned 4.5% in CAD for the quarter, with 10 of the 11 sectors generating positive returns, led by the Utilities sector and followed by Real Estate. The Energy sector was the only segment posting negative returns for the period.
• International developed markets, as measured by the MSCI EAFE Index, recorded 6.0% in CAD for the quarter. Most sectors advanced during the period with Real Estate being the top performer and the Energy sector posting the weakest results.
• The MSCI Emerging Markets Index generated 7.5% in CAD for the quarter. Most sectors posted positive returns led by the Consumer Discretionary and Health Care sectors, while Information Technology and Energy sectors declined over the period.

The Canadian economy saw downward pressure on inflation throughout the quarter impacted by excess supply. As the job data continued to show signs of softening, this led the Bank of Canada (BoC) to continue its monetary easing cycle.

The U.S. economy continued to exhibit signs of resilience despite some of the pockets of underwhelming economic data releases throughout the quarter. As inflation continued to decline coupled with moderation in the labor market, the Fed cut its overnight interest rate by 50 basis points to a range of 4.75% - 5.00%. This marked the first reduction since March 2020 and also highlighted the Fed’s confidence regarding the path of inflation.

International markets witnessed a cooling of Eurozone inflation and concerns of an economic slowdown which led the European Central Bank (ECB) to lower the deposit rates to 3.5%, marking its second interest rate cut this year. The Bank of England (BoE) chose to cut interest rates by 25 basis points to 5.0%, noting inflationary pressures had eased. This represented its first interest rate cut in four years. Meanwhile the Bank of Japan (BoJ) raised its benchmark rate for the second time this year to 0.25%, the highest it has been since 2008. In addition, the BoJ announced its plans to scale back its monthly bond buying program.

Emerging markets observed solid gains during the third quarter. The People’s Bank of China (PBoC) announced a massive stimulus package in an effort to support its economy. The Central Bank of Brazil raised its key Selic rate by 25 basis points to 10.75% to bring inflation closer to target. The Reserve Bank of India (RBI) held its benchmark rate at 6.5% as it seeks to tame inflation.

The Bank of Canada (BoC) in its September meeting cut interest rates by 25 basis points to 4.25%, marking the second cut of the quarter, and the third consecutive rate cut since June. The Bank stated that the extension of its rate cuts was warranted as excess supply in the economy continued to put downward pressure on inflation.

The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index, advanced 4.7% for the quarter. Provincial bonds witnessed the strongest gains followed by Corporate and Federal bonds. All bond durations witnessed gains for the quarter, with long-term bonds leading followed by mid and short-term bonds.

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 24 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2024, Northern Trust had assets under custody/administration of US$17.4 trillion, and assets under management of US$1.6 trillion. For more than 135 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit us on northerntrust.com. Follow us on X (formerly Twitter) @NorthernTrust or Northern Trust Corporation on LinkedIn.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/terms-and-conditions.

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