Overview of pension fund returns and financial markets-3rd quarter 2019

Overview of pension fund returns and financial markets-3rd quarter 2019


Issue 19-19
Mon, 11/18/2019 - 11:50

SAI Balanced Funds Index

This quarter was eventful for investors. The SAI Balanced Funds Index continued its progression with a quarterly increase of 1.8%. 

Canadian Bonds

The yield curve’s inversion was the prominent event of the quarter. In fact, 10-year Canadian government bond yield rates have fallen below the 91-day Treasury bill rate. The decline in longer-term interest rates explains the positive performance in the Canadian bonds universe of 1.2% over the period (FTSE TMX Canada Universe Index). 

  1. During its meetings on July 10th and September 4th, the Bank of Canada decided to maintain the overnight rate to 1.75%. This measure is justified by, among others, the country’s weaker than anticipated growth rate, by the level of Canadian household debt as well as by the trade dispute between China and the United States.
  2. On the US side, the return of trade tensions, following the imposition of a wave of tariffs on several Chinese goods imported into the United States, led the US Federal Reserve (Fed) to lower its policy interest rate twice during the quarter, from 2.5% to 2.0% to support economic growth.
  3. Much like the previous quarter, provincial bonds led the way with the best performance (+1.6%), followed by corporate bonds (+1.1%) and federal bonds (+0.8%).

Canadian Equities

The Canadian stock market index, the S&P/TSX, grew 2.5% over the period.

  1. Oil prices have been volatile in the last three months, with prices virtually reaching the low January in August, to finally rising in mid-September after the attack on Saudi Arabia's oil infrastructure, to close the quarter below last June's level. Nevertheless, the energy sector gained 1.2% over the quarter.
  2. In regards to the sectors, it was the utilities for which the largest progression was observed (+10.1%), while the health sector, led by cannabis companies, incurred the greatest loss (-30.0%).
  3. The index's performance was driven by large-cap stocks (S&P/TSX  60: +2.7%), while small cap equities diminished in value (S&P/TSX Small Cap: -1.2%).

Global Equities

All developed markets progressed. As represented by the MSCI World Market Index, it rose by 1.5 % in local currencies. 

  1. The Canadian dollar depreciated slightly against the US dollar since June 28th. As a result, the performance of the MSCI World Index, of which the US represents more than 60% of its composition, was 1.9% in Canadian dollar rather than 1.5% in local currencies.
  2. Despite trade tensions, job growth and low unemployment and interest rates contributed to the 1.7% increase seen in the US market index (S&P 500 USD).
  3. The MSCI EAFE Index (local currencies) rose by 1.8% over the last three months, despite the unstable european economy.
  4. Emerging market equities index (MSCI EM local currencies), of which China represents more than 30% of its composition, suffered a quarterly loss of 2.1%, mainly due to geopolitical tensions between China and the United States.
Indices Q3 2019 Year 2019
SAI Balanced Funds Index1 1.78%  13.05% 
FTSE TMX Canada Universe 1.19%  7.79% 
S&P/TSX 2.48%  19.11% 
MSCI World    
   $ CAD 1.86%  14.01% 
   local currencies 1.53%  18.47% 
S&P 500    
   $ CAD 3.04%  16.86% 
   $ USD 1.70%  20.55% 
   $ CAD 0.23%  9.35% 
   local currencies 1.75%  15.67% 
MSCI Emerging Markets    
   $ CAD -2.98% 2.66% 
   local currencies -2.07% 7.77% 

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

Medians Q3 2019 Year 2019
Balanced Funds 1.47%  11.91% 
Canadian Bonds 1.21%  7.86% 
Canadian Equities 2.51%  16.65% 
US Equities  2.50%  16.34% 
Global Equities 1.29%  13.47% 
International Equities 0.07%  9.68% 
Emerging Market Equities  -2.39% 4.66% 


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