Overview of pension fund returns and financial markets - 1st quarter 2018

Overview of pension fund returns and financial markets - 1st quarter 2018


Issue 18-08
May 11, 2018

SAI Balanced Funds Index

With 2017 being a year of very low volatility, investors were reminded that markets are risky when the S&P 500's VIX volatility Index jumped 20 points on February 5, 2018, its strongest daily rise since Black Monday in 1987. With the return of uncertainty, the SAI Balanced Funds Index ended the quarter in negative territory at -0.8%. 

Canadian Bonds

In general, short-term and medium-term rates slightly rose during the quarter. The FTSE TMX Canada Universe Index posted a modest gain of 0.1%. 

  1. After raising its Policy Interest Rate to 1.25% in January, the Bank of Canada maintained its overnight rate in March, taking into account the real estate market and the NAFTA negotiations.
  2. For its part, the Fed raised its federal funds target rate by 0.25% to 1.75%.
  3. Although short-term medium-term rates have risen, long-term rates have remained stable. The rise in long-term rates will depend on, among other things, the inflation outlook. In this sense, investors will monitor the economic indicators regarding inflation very closely.

Canadian Equities

Despite sustained economic growth for 2017 (2017 real GDP growth: +3.0%), the S&P/TSX was not spared by the return of volatility at the beginning of the year and was down 4.5% in the quarter. 

  1. The decline in the S&P / TSX was partly due to the performance of the energy sector, which returned -9.4% during the quarter. In addition, the risks surrounding NAFTA trading, household debt and the imbalance in the real estate market seem to undermine investors' optimism for Canada.
  2. With the exception of technology (+10.2%) and real estate (+0.5%), all sectors lost ground over the period, with the largest decline level for healthcare (-13.5%) and energy (-9.4%).
  3. Large-cap equities outperformed small-cap equities in 2017 (+9.8% versus +2.8%). The same trend seems to be continuing in 2018: for the quarter, large-cap equities returned -4.6% and small-cap equities -7.7%.

Global Equities

Investors' fear of the US government's protectionist policies dampened the momentum of all global markets at the end of the quarter. The MSCI World Index (CAD) still posted a gain of 1.6% during the quarter. 

  1. During the quarter, the Canadian dollar depreciated against most currencies, notably due to the turmoil surrounding NAFTA, which has led to better returns abroad for Canadian investors. In fact, the MSCI World Index rose +1.6% in CAD versus -2.2% in local currencies.
  2. The S&P 500 Index (USD) was down -0.8% during the quarter, as market volatility was driven by inflationary pressures and trade protectionism but was also magnified in February by the negative performance of Exchange Traded Funds linked to volatility indices.
  3. The MSCI EAFE Index in local currencies lost 4.3% in the last three months. The European Central Bank intends to maintain its asset purchase program at the current level for the coming months.
  4. The MSCI EM Index in local currencies increased (+0.7%) during the period, outperforming the global developed markets, despite the fierce discussions in tariffs between the US and China.
Indices Q1 2018 Year 2018
SAI Balanced Funds Index1 -0.84% -0.84%
FTSE TMX Canada Universe 0.10% 0.10%
S&P/TSX -4.52% -4.52%
MSCI World    
   $ CAD 1.58%  1.58% 
   local currencies -2.21% -2.21%
S&P 500    
   $ CAD 2.12%  2.12% 
   $ USD -0.76% -0.76%
   $ CAD 1.32%  1.32% 
   local currencies -4.28% -4.28%
MSCI Emerging Markets    
   $ CAD 4.36%  4.36% 
   local currencies 0.72%  0.72% 

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

Medians Q1 2018 Year 2018
Median SAI Balanced Funds -0.71% -0.71%
Canadian Bonds 0.14% 0.14%
Canadian Equities -3.87% -3.87%
US Equities  2.40% 2.40%
Global Equities 1.98% 1.98%
International Equities 1.62%  1.62% 
Emerging Market Equities 4.24% 4.24%

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