Overview of pension fund returns and financial markets

Overview of pension fund returns and financial markets

Investments

4th quarter 2020

Issue 21-03
February 15, 2021

SAI Balanced Funds Index

The fourth quarter was a profitable one for all markets. The production and distribution announcement of an effective COVID-19 vaccine was welcomed with enthusiasm by investors. The SAI Balanced Fund Index climbed 5.6% during the period, ending the year up at 9.3%. 

Canadian Bonds

In general, the average yield to maturity rate of the FTSE TMX Canada Universe Index, representing the overall Canadian bond market, fell from 1.3% to 1.2% during the quarter, resulting in a quarterly return of 0.6%. For 2020, this index increased by 8.7%. 

  1. With respect to maturity levels, the yield curve of Canadian government bonds steepened during the quarter with short-term rates falling and medium and long-term rates rising. Thus, the quarterly yield on long-term Canadian government bonds (-1.4%) was lower than that on medium-term (-0.3%) and short-term (+0.1%) Canadian government bonds. Overall, the average yield on federal bonds, across all maturities, was relatively neutral (-0.3%).
  2. At the sector level, credit spreads tightened, which was favorable for the quarterly performance of provincial bonds (+ 0.6%) and corporate bonds (+1.8%), and more particularly regarding high yield bonds (+4.1%).
  3. Finally, the Bank of Canada maintained its overnight rate at 0.25% during its meeting on October 28.

Canadian Equities

The Canadian equity market index, the S&P/TSX, has climbed 9.0% over the past three months, reflecting the longer-term outlook for an economic recovery. Despite the volatility, the index closes 2020 with a positive return of 5.6%. 

  1. Except for the Materials (-3.7%) and Consumer Staples (-5.6%) sectors, all other sectors in the index performed well during the quarter, leading the way were healthcare (+30.1%) and consumer discretionary (+21.0%).
  2. Canadian small-cap stocks jumped 23.5% in the fourth quarter, while Canadian large-cap stocks rose 7.9%. This significantly higher return enabled small cap stocks to end the year with a higher annual performance than large cap stocks (+12.9% versus +5.6%).

Global Equities

Global stock markets in developed countries set yet again new records during the quarter. The benchmark index, the MSCI World, returned 12.4% in local currencies, for a cumulative annual gain of 13.5% over the year. 

  1. The appreciation of the Canadian dollar against MCSI World Index local currencies persisted over the past three months, resulting in a return in Canadian dollars (+8.7%) lower than that calculated in local currencies (+12.4%).
  2. The S&P 500 USD, which represents the US equity market, rose 12.2% in the quarter, particularly driven by the news of potential new stimuli and the announcement of effective vaccines. Value stocks and small cap stocks did particularly well, with a quarterly performance of 14.5% for the S&P 500 Value USD Index, which could be used to represent value stocks, and 31.4% for the Russell 2000 USD Index that can be used to represent small cap stocks.
  3. The MSCI EAFE index’s (local currencies) return, representing the global stock markets of developed countries apart from Canada and the United States, has been 11.4% since the end of September, despite the containment measures and a new variant of the virus. As for the US market, this last quarter was more profitable for value investors (+14.3%) than for growth investors (+8.6%).
  4. The performance of all emerging market equities, represented by the MSCI EM Index, has been excellent with a return of 16.0% in local currencies. Unlike the previous quarter, China had a less attractive quarterly performance as the index of emerging countries excluding China returned 19.7% in local currencies. For this quarter, it was Latin American emerging market equities that performed particularly better with a quarterly return in local currencies of 23.9%.
Indices Q4 2020 Year 2020
SAI Balanced Funds Index1 5.55%  9.31% 
FTSE TMX Canada Universe 0.63%  8.68% 
S&P/TSX 8.97%  5.60% 
MSCI World    
   $ CAD 8.69%  13.87% 
   local currencies 12.36%  13.48% 
S&P 500    
   $ CAD 6.96%  16.32% 
   $ USD 12.15%  18.40% 
MSCI EAFE    
   $ CAD 10.68%  5.92% 
   local currencies 11.35%  0.84% 
MSCI Emerging Markets    
   $ CAD 14.16%  16.23% 
   local currencies 16.02%  19.12% 

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

 

Medians Q4 2020 Year 2020
Median SAI Balanced Funds 6.43%  8.79% 
Canadian Bonds 0.93%  9.53% 
Canadian Equities 9.34%  2.34% 
US Equities  8.08%  16.41% 
Global Equities 8.61%  13.38% 
International Equities 10.34%  7.34% 
Emerging Market Equities  14.55%  15.95% 

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