Northern Trust Pension Universe Data: Canadian Pension Plans Benefit From Sharp Rebound in Global Equities During Second Quarter 2020

Strong equity performance in the second quarter of 2020 helped Canadian defined benefit plans recover most of the investment losses experienced during the initial days of the Covid-19 pandemic, according to the Northern Trust Canada Universe. Major equity markets responded favorably as economies reopened and stimulus packages gained traction, concluding the quarter with double digit gains.

“Despite the level of volatility witnessed over the last several months, Canadian pension plans are tracking in a positive direction, with the median plan in the Northern Trust Canada Universe generating a solid 9.9% gain for the second quarter,” said Katie Pries, President and CEO of Northern Trust Canada. “Although there still remains a heightened level of uncertainty in the current environment as the pandemic continues to run its course, plan sponsors continue to persevere as they navigate on a path to sustainability.”

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

Global financial markets rallied in the second quarter, rebounding from the sharp drop in equities at the start of the global pandemic crisis. Trade frictions and geopolitical tensions resurfaced but were soon overshadowed by extraordinary government measures to curb the economic fallout from the pandemic. Massive fiscal stimulus packages implemented around the globe, coupled with accommodative central bank policies, provided a solid foundation for the markets. During the latter part of the quarter, many countries slowly emerged from lockdowns and economies began to reopen, triggering early signs of improvement in economic activity and fueling investor optimism.

• Canadian Equities, as measured by the S&P/TSX Composite, generated a return of 17.0% for the quarter, with the majority of all sectors posting healthy gains.
• U.S. equities climbed back from recent lows with the S&P 500 gaining 15.3% in CAD for the quarter.
• International developed markets, as measured by the MSCI EAFE Index, concluded the quarter with a double digit return, generating 10.1% in CAD.
• The MSCI Emerging Markets index witnessed a 13.1% return in CAD during the second quarter, with all sectors showing positive gains for the period.

The Canadian labour market felt the impact of the global pandemic in the early part of the second quarter as witnessed by the massive job losses, but as the economy progressed to re-opening, signs of job recovery gained traction by the end of the quarter. Low oil prices which led to reduced transportation costs contributed to a sharp decline in headline CPI to sub-zero level during the months of April and May. Although the housing market experienced a steep decline in April, housing starts rose sharply in May followed by an 8.3% increase in June. Within the currency market, the Canadian Dollar appreciated by approximately 4% relative to the U.S. Dollar during the quarter.

The U.S. economy weathered the economic turmoil during the quarter as economic data showed signs of recovery. The labour market was impaired by the lockdowns but recovered slightly as individual states slowly resumed economic activity. The U.S. unemployment rate dropped to 11.1% in June, from a high of 14.7% in April. The Federal Reserve (Fed), in an effort to maintain stability, retained the federal funds target range of 0%–0.25%.

International markets welcomed the introduction of economic relief programs which included the European Commission’s proposal to aid the bloc’s economic recovery as well as the European Central Bank’s (ECB) expansion of the Pandemic Emergency Purchase Program (PEPP). The Asia Pacific Region also introduced relief measures, including Japan’s lending program to banks in an effort to aid small and medium sized businesses.

As emerging markets continued to see a rise in coronavirus cases, governments steadily injected fiscal stimulus and central banks remained in accommodative mode in an effort to buffer their economies. Consistent with the actions of other central banks, The People’s Bank of China (PBOC) cut its benchmark interest rate, Brazil’s central bank lowered its benchmark rate and the South African Reserve Bank (SARB) lowered its repo rate twice.

The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index returned 5.9% during the quarter with Corporate bonds outpacing both the Government and Provincial Segments. Long-term issuers outperformed the short and mid-term sectors. The Bank of Canada (BoC) maintained its overnight interest rate at 0.25%, while expanding its asset purchase program to include both Provincial and Corporate bonds. The BoC also announced new leadership, with the appointment of Tiff Macklem as its new governor.

Northern Trust – Canada

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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 22 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2020, Northern Trust had assets under custody/administration of US $12.1 trillion, and assets under management of US $1.3 trillion. For more than 130 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Please visit our website or follow us on Twitter.

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