Overview of pension fund returns and financial markets-2nd quarter 2020

SAI Balanced Funds Index

The second quarter was marked by a spectacular rebound for all markets, despite pessimistic economic indicators. As a benchmark, the SAI Balanced Fund Index has climbed 11.70% over the past three months, allowing it to return to positive territory over the year to June 30. 

Canadian Bonds

Central banks continued to be proactive in supporting the economy. The return on Canadian bonds, represented by the FTSE TMX Canada Universe, rose 5.9% during the period. 

1. While the Bank of Canada maintained its overnight rate at 0.25% at its April and June meetings, it announced several expansionary measures, such as the provincial and corporate bonds purchase program.
2. These measures benefited corporate (+8.1%) and provincial (+7.7%) bond returns more than federal bond (+2.3%) returns.
3. In terms of various maturity levels, the decline on mid-term bond rates was more significant than that for long-term bonds, which had the effect of steepening the curve.

Canadian Equities

The Canadian stock market rebounded in the second quarter as investors gambled on a faster-than-expected economic recovery. The S&P/TSX Index’s return grew by 17% over the past three months. 

1. On the sectors side, except for the communications sector which fell by 1%, all ended the quarter in positive territory. The index’s excellent quarterly performance is partly explained by returns for the information technology (+68%) and materials (+42%) sectors which alone represented more than 25% of the index on June 30th.
2. The budgetary and monetary measures announced by multiple levels of government and the gradual reopening of businesses further boosted small-cap stock returns (S&P/TSX Small Cap: +38.5%), which had been hit harder in the first quarter than that of large-cap stocks (S&P/TSX 60: +15.0%).

Global Equities

After hitting a low near the end of the first quarter, global stock markets soared in the second quarter, after many countries gradually reopened their economies, in addition to offering exceptional fiscal and monetary stimuli. The benchmark index, MSCI World, returned 18.5% in local currencies. 

1. On a similar note, the MSCI World Index’s return in Canadian dollars was lower (14.2%) than that calculated in local currencies (18.5%) given the appreciation of the Canadian dollar against most developed market currencies.
2. The US market index, S&P 500 USD, has improved 20.5% in the past three months as the US lifted COVID-related restrictions early relative to other countries hard hit by the pandemic. In addition, it is important to note that the 5 largest companies (Microsoft, Apple, Amazon, Facebook and Alphabet), representing more than 20% of the index’s market capitalization, posted a very favorable combined return of almost 35%. This explains in large part the rebound in US equities, but also in global equities since these companies represent approximately 15% of the market capitalization of the MSCI World index.
3. The MSCI EAFE Index (local currencies), which primarily represents the global stock markets of developed countries, with the exemption of Canada and the United States, has climbed more than 12.6% since the end of March.
4. Emerging markets, represented by the MSCI EM index in local currencies, benefited from renewed investor confidence and capital inflow.

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