Canadian pensions surge ahead of pre-crisis levels

Second consecutive year of double-digit returns: RBC Dexia

Strength in Canadian equities has helped Canadian pension plans surge ahead of pre-financial crisis levels of 2008, according to a survey by RBC Dexia Investor Services.

Pension assets earned 4.3 per cent in the quarter ending December 2010, improving the full-year performance to 10.4 per cent and making this a second consecutive year of double-digit returns.

Despite volatility in the global markets during the past 10 years, Canadian pension plans have achieved an average annualized return of 5.4 per cent, said RBC Dexia.

"What the last decade has taught us is that diversification and disciplined investing is key over the long run," said Fay Coroneos, global head of risk and investment analytics at RBC Dexia.

Canadian equity markets did well as nine out of 10 TSX sectors saw double-digit annual gains. Even though Canadian pension plans underperformed the index by 0.4, "it was encouraging to see strong returns not only in energy and materials but also in industrials and the consumer discretionary sectors," said Coroneos.

Foreign equities increased 6.3 per cent over one year, found the survey

"Returns were muted by the soaring loonie, which gained significantly against the (United States) dollar and was one of the best performers among major world currencies," said Coroneos.

The MSCI World Index in local currency increased 10.0 per cent for the year, but was reduced to 5.9 per cent when translated into Canadian dollars.

For the year, domestic bond holdings within Canadian pension plans advanced 7.8 per cent, surpassing the DEX Universe index by 1.1 per cent.

"Long-term bonds, with maturity of over 10 years, continue to dominate short-term and mid-term bonds in 2010," said Coroneos. "The growing focus on asset-liability matching has resulted in pension plans shifting into the longer end of the yield spectrum, increasing demand for long-term bonds. In light of this, we believe a governance structure which ncludes the use of a liability-based benchmark will be of great interest for pension plans in 2011."

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