Overview of pension fund returns and financial markets-1st quarter 2020

Overview of pension fund returns and financial markets-1st quarter 2020


Numéro 20-09
Thu, 04/23/2020 - 14:14

SAI Balanced Funds Index

The COVID-19 outbreak, which was officially declared a pandemic on March 11, 2020 by the World Health Organization, sparked panic that saw the stock market plummet. Nevertheless, the positive return on Canadian bonds mitigated the losses of the SAI Balanced Funds Index, which ended the quarter down 9.7%. 

Canadian Bonds

The quarter was marked by emergency measures adopted by central banks, such as reviving asset buy-back programs, a sharp drop in policy rates and other actions aimed at facilitating access to credit. Consequently, the yield curve has steepened during the quarter, due to the more significant fall in short-term interest rates than in long-term interest rates. The Canadian bonds yield, represented by the FTSE TMX Canada Universe Index, increased by 1.6% during the period. 

  1. The Bank of Canada lowered its overnight rate from 1.75% to 0.25%. The latter, which had kept the overnight rate at 1.75% since October 2018, applied three rate cuts of 0.5%, from March 4 to March 27, 2020.
  2. The US Federal Reserve also lowered its policy interest rate to 0.25% and resumed its quantitative easing program.
  3. Among the various Canadian universe bond sectors, investors found refuge in federal bonds (+ 5.1%), while provincial bonds rose more modestly (+1.3%) and the credit spread damaged the return on corporate bonds (-2.5%).

Canadian Equities

The Canadian stock market, whose performance is mainly based on sectors sensitive to economic growth, was hit hard by the COVID-19 crisis. The market index, the S&P/TSX, fell 20.9% during the quarter. 

  1. In terms of sectors, they all ended the quarter in negative territory. The worst performance was reflected in the energy sector (-37.2%). In addition to the downward pressure on the price of a barrel of oil caused by the pandemic impact, the price war between Russia and Saudi Arabia, which has driven the latter to increase its oil production and exports, has accentuated losses in this sector.
  2. The federal government order for closure of businesses suggests a significant contraction of the Canadian GDP for the first half of 2020. In addition, small cap company stocks (S&P/TSX Small Cap: -38.1%) were hit harder by this measure than large cap company stocks (S&P/TSX 60: -18.5%).

Global Equities

Global stock markets collapsed following a massive investors sale, due to the uncertainty of economic growth impacts during the COVID-19 outbreak. The benchmark, the MSCI World Index, fell -20.1% in local currencies. 

  1. However, the fall in commodity prices led to the depreciation of the Canadian dollar against most currencies in developed markets. As a result, the MSCI World Index performance in Canadian dollars was higher (-13.3%) than that calculated in local currencies (-20.1%).
  2. The US market index, the S&P 500 USD, has fallen 19.6% in the past three months, despite all the efforts by the Trump administration and the Fed to implement fiscal and monetary policies to alleviate fiscal burdens on businesses and individuals. On March 26, 2020, we learned that more than 3.3 million Americans had applied for employment insurance, and since that date, the United States possesses the largest number of COVID-19 infected people in the world.
  3. The MSCI EAFE Index (local currencies) has depreciated by more than 20.6% since the start of the year. In the eurozone, where growth was already fragile before the virus outbreak, economic indicators point to an economic recession.
  4. Emerging market equities, represented by the MSCI EM Index in local currencies, lost more than 19.1% during the period. In a context where a global recession is expected this year, investors are redirecting their capital to less risky assets.
Indices Q1 2020 Year 2020
SAI Balanced Funds Index1 -9.65% -9.65%
FTSE TMX Canada Universe 1.56% 1.56%
S&P/TSX -20.90% -20.90%
MSCI World    
   $ CAD -13.34% -13.34%
   local currencies -20.10% -20.10%
S&P 500    
   $ CAD -11.75% -11.75%
   $ USD -19.60% -19.60%
   $ CAD -15.29% -15.29%
   local currencies -20.55% -20.55%
MSCI Emerging Markets    
   $ CAD -16.14% -16.14%
   local currencies -19.05% -19.05% 

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

Medians Q1 2020 Year 2020
Balanced Funds -9.98% -9.98%
Canadian Bonds 0.99% 0.99%
Canadian Equities -20.42% -20.42%
US Equities  -12.82% -12.82%
Global Equities -13.43% -13.43%
International Equities -15.73% -15.73%
Emerging Market Equities  -17.61% -17.61%


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