Overview of pension fund returns and financial markets - 3rd quarter 2018

SAI Balanced Funds Index

SAI Balanced Fund Index’s growth in Q3 was moderate with a return of 0.4%. 

Canadian Bonds

The last quarter saw an increase in long-term interest rates. Overall, the Canadian bond market retreated and the FTSE TMX Canada Universe Index decreased by 1.0% over the period. 

1. The Bank of Canada raised its overnight rate to 1.50% in the third quarter.
2. The US Federal Reserve (Fed) also raised its key rate to 2.25% over the period.
3. In regard to the returns by sectors, corporate bonds declined 0.5%, while federal and provincial bonds declined 0.8% and 1.5% respectively.

Canadian Equities

The Canadian stock market lost ground during the quarter (-0.6%).

1. The political uncertainty over a possible free trade agreement ended on September 30 with the signing of the new agreement called the United States-Mexico-Canada Agreement (USMCA).
2. It is the health and energy sectors, both for the third quarter (+31.4% and -12.9%) and since the beginning of the year (+29.9% and -10.0%), who are the winning and losing sectors for the index.
3. Large-cap equities saw a smaller decline compared to small-cap equities over the last three months, with returns for the S&P/TSX 60 and S&P/TSX Small Cap index being -0.7% and -2,8%, respectively.

Global Equities

Global equities continued to rise in the third quarter, with the MSCI World index (CAD) posting a quarterly gain of 3.2%. 

1. Reduced investment gains in Canadian dollars were felt, due to the rising Canadian dollar during the period. In fact, the return of the MSCI World calculated in local currencies (+5.3%) outperformed that calculated in Canadian dollars (+3.2%).
2. The US economy is booming: US consumer confidence, wage growth and sales growth are all at high levels while the unemployment rate is at a very low level. As a result, US equities (S&P 500 USD Index) outperformed all global markets during the quarter with a 7.7% return.
3. In terms of global equities (MSCI EAFE local currencies), Japanese equities led the gains with a weak Yen boosting exports. In Europe, on the other hand, gains were eased with uncertainties regarding trade, Brexit, Italian finances and some signs of economic slowdown. All in all, the index grew 2.4% in local currencies over the last three months.
4. Emerging market equities (MSCI EM local currencies index) were held back by the rise of the US dollar, rising interest rates and worries about global trade. The return of the index remains neutral in local currencies (-0.04%).

¹ The composition of the SAI Balanced Funds Index is 40% FTSE TMX Universe, 30% S&P/TSX and 30% MSCI World.