Overview of pension fund returns and financial markets - 4th quarter 2021

SAI Balanced Funds Index

All financial markets ended the year on a positive note. Although the impacts of COVID-19 are still being felt, other developments have marked the quarter, such as the increase of volatility in the equity market and a further rise in inflation. The SAI Balanced Funds Index climbed 4.8% during the quarter and ended the year with a return of 12.7%.

Canadian Bonds

The Canadian bond market, which is represented by the FTSE TMX Canada Universe Index, rose 1.5% during the quarter.

1. Yields on short-term and medium-term federal bonds rose during the period, whereas yields for long-term federal bonds declined.
2. In terms of maturities, the quarterly return of short-term bonds (-0.5%) was lower than that of medium-term bonds (+0.3%) and long-term bonds (+4.8%).
3. From a sectors perspective, federal, provincial, and corporate bond returns were +0.8%, +2.4% and +1.1%, respectively.
4. At its October 27 and December 8 meetings, the Bank of Canada kept the overnight rate target at 0.25%.

Canadian Equities

The Canadian stock market, represented by the S&P/TSX Index, posted a return of 6.5% over the last 3 months.

1. During the quarter, the rate of inflation continued to increase, reaching an annual rate of 4.8%¹  in December, a level not seen since 1991.
2. At the sector level, 9 out of 11 sectors experienced positive returns, led by Materials (+10.7%) and Financials (+9.4%). The Healthcare sector, for its part, continued to fall for a third consecutive quarter with a return of -18.3%.
3. On the capitalization side, Canadian large cap stocks were the best performers, followed by small and mid cap stocks. As a result, the returns of the S&P/TSX 60, S&P/TSX Small Cap and S&P/TSX Mid Cap indices were +7.8%, +3.0%, and +1.9%, respectively.

Global Equities

As for the developed stock markets, the MSCI World Index continued to rise with a return of +8.1% in local currencies during the quarter.

1. The Canadian dollar appreciated against all local currencies. As a result, the MSCI World Index’s return in Canadian dollars (+7.5%) was lower than that calculated in local currencies (+8.1%).
2. The US market’s performance, represented by the S&P 500, was excellent during the quarter with a return of 11.0% in local currency, despite increased volatility during the months of November and December. This increase in volatility is due to several factors, including fears related to inflation, uncertainty related to the Omicron variant and speculation surrounding the Fed meeting in December. It should also be noted that although the market as a whole rose, several stocks that had performed spectacularly well since the start of the pandemic fell sharply during the quarter.
3. Internationally, the COP26 conference, which took place to discuss environmental issues, as well as the persistent energy crisis in Europe, attracted the attention of investors around the world. In terms of returns, the MSCI EAFE index (local currencies), which essentially represents the global stock markets of developed countries except for Canada and the United States, posted a return of 3.9%.
4. The MSCI EM index in local currencies, representing emerging markets, fell 0.9% over the same period. While several developed countries are considering raising their interest rates, China, for its part, lowered one of its benchmark interest rates in December to support the Chinese economy, which has lost momentum after the real estate sector was hit hard and due to repeated COVID-19 related outbreaks.

¹ Rate calculated according to the variation between the consumer price index (CPI) for a given month and that for the same month of the previous year.

² The composition of the SAI Balanced Funds Index is 40% FTSE TMX Universe, 30% S&P/TSX and 30% MSCI World.