Overview of pension fund returns and financial markets

Overview of pension fund returns and financial markets

Investments

2nd quarter 2021

Issue 21-11
29 July 2021

SAI Balanced Funds Index

All financial markets rose in the second quarter of the year. With several countries receiving their second dose of the COVID-19 vaccine, investor optimism for the economic recovery remains strong and the SAI Balanced Funds Index climbed 5.1% in the quarter.

Canadian Bonds

The FTSE TMX Canada Universe Index’s quarterly return, representing the Canadian bond market, was 1.7%.

1. The quarter was impacted by an increase in short-term interest rates, while long-term rates were down, causing better returns for long-term bonds (+3.7%) to that of medium- (+1.6%) and short-term bonds, which was slightly on the positive side (+0.1%) despite increases in rates.

2. At the sector level, provincial bonds (+2.7%) outperformed federal bonds (+0.8%) during the quarter. In addition, investor confidence in the country's economic recovery was reflected in a slight tightening of credit spreads, benefiting corporate and high-yield bondholders, for which quarterly returns were +1.3% and +2.6%, respectively.

3. During its meetings on April 21 and June 9, the Bank of Canada decided to maintain its overnight rate at 0.25%.

Canadian Equities

The Canadian stock market reached new record levels in the past three months: with several provinces ahead of their vaccination schedule, the vaccine rollout across the country going better than expected and with the reopening of Canada’s economy progressing faster than anticipated. The market’s index, S&P/TSX, rose 8.5% over this same period.

1. Most sectors of the index increased during the quarter, with the Information Technology sector leading the way with a quarterly return of +23.0%. The exception was in the Health Care sector (-11.6%), primarily composed of cannabis company stocks whose share prices fell considerably following the 1st quarter’s spectacular performance.

2. Overall, Canadian equities performed very well this quarter. Again, Canadian small-cap stocks performed the best, when compared to mid- and large-cap stocks. The S&P/TSX Small Cap, S&P/TSX Mid Cap and S&P/TSX 60 indices returns were 9.2%, 6.9% and 9.0% respectively.

Global Equities

The global stock markets in developed countries continued to climb during the quarter. The MSCI World's return was 7.6% in local currencies.

1. Given the appreciation of the Canadian dollar, the MSCI World Index’s return in local currencies (+7.6%) was higher than that calculated in Canadian dollars (+6.2%).

2. The quarterly return for the US stock market index, S&P 500 USD, was 8.5%. The effects of President Joe Biden's economic stimulus package were felt this quarter. The unemployment rate in the United States fell more than expected and the trend of new COVID-19 cases are on the decline.

3. The MSCI EAFE Index (local currencies), which primarily represents the global stock markets of developed countries except Canada and the United States, posted a quarterly gain of 4.8%. As in the United States, the European Union's economic situation has experienced a revitalizing momentum. Particularly, investors seem to have been reassured by the fact that the European Central Bank and the Federal Reserve have given an accommodating speech to appease inflation fears and the repercussions of an earlier-than-expected interest rate hike. Experts, however, remain divided on the subject.

4. Emerging markets, represented by the MSCI EM Index in local currencies, posted returns of 3.8% over the same period, benefiting among other things from the sharp rise in commodity prices. Thus, the emergence of COVID-19 cases and its variants and the repercussions this has for some countries that may have less developed health care systems and slower vaccine deployment has not had a significant impact on the performance of the index during the quarter.

Indices Q2 2021 Year 2021
SAI Balanced Funds Index1 5.07% 6.76%
FTSE TMX Canada Universe 1.66% -3.46%
S&P/TSX 8.54% 17.28%
MSCI World    
   $ CAD 6.15% 9.88%
   local currencies 7.58% 14.19%
S&P 500    
   $ CAD 6.95% 12.02%
   $ USD 8.55% 15.25%
MSCI EAFE    
   $ CAD 3.62% 5.78%
   local currencies 4.79% 12.75%
MSCI Emerging Markets    
   $ CAD 3.50% 4.44%
   local currencies 3.83% 7.95%

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

 

Medians Q2 2021 Year 2021
Median SAI Balanced Funds 4.74% 7.64%
Canadian Bonds 1.75% -3.14%
Canadian Equities 7.80% 17.07%
Global Equities 5.64% 9.62%

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