Overview of pension fund returns and financial markets-4th quarter 2018
SAI Balanced Funds Index
The quarter was marked by a stock market correction on the global stock market, which wiped out any gains accumulated during the year. The quarterly performance of the SAI Balanced Funds Index was -4.9%.
Despite an increase in short-term interest rates, medium and long-term interest rates have declined. Overall, the Canadian bond market, represented by the FTSE TMX Canada Universe Index, improved by 1.8% over the period.
- On October 24th, the Bank of Canada raised its overnight rate from 1.50% to 1.75%.
- In December, the US Federal Reserve (Fed) also increased its key rate by 0.25%to 2.50%.
- In terms of sector performances, the rate cut benefited federal bond yields (+2.5%), provincial bonds (+1.7%) and corporate bonds (+0.9%).
The Canadian stock market, represented by the S&P/TSX Index, plunged 10.1% during the quarter.
- Low oil prices and higher interest rates by the Bank of Canada led to the collapse of the Canadian market.
- Only 3 of 11 sectors in the index posted a positive return for the quarter. At the forefront is the consumer staples sector (+5.7%), while the lowest ranked sector is the health sector (-35.5%).
- The dip was larger in small-cap stocks than large-cap stocks. S&P/TSX Small Cap and S&P/TSX 60 Index returns were -14.4% and -8.9%, respectively.
The decline in global equities has eliminated accumulated gains since the beginning of the year. The MSCI World CAD Index recorded a quarterly loss of 8.5%, closing the year in negative territory (-0.5%).
- The weakening of the Canadian dollar against the US dollar mitigated investor losses when calculated in Canadian dollars (-8.5%) rather than local currencies (-13.1%).
- The US market index, S&P 500 USD, lost 13.5% during the quarter. Various factors contributed to this decrease, including trade tensions with China, rising labour and material costs, and the decline in the price of a barrel of oil.
- In terms of international equities (MSCI EAFE local currencies), the quarter was marked by uncertainties over Italy's fiscal policy and debt level. Overall, the index fell 12.2% in local currencies over the last three months.
- Emerging markets (MSCI EM local currencies Index) plunged 7.4% during the quarter. In spite of this, their performance was still higher than that of developed markets.
|Indices||Q4 2018||Year 2018|
|SAI Balanced Funds Index1||-4.88%||-2.25%|
|FTSE TMX Canada Universe||1.76%||1.41%|
|MSCI Emerging Markets|
1 The composition of the SAI Balanced Funds Index is 40% FTSE TMX Universe, 30% S&P/TSX and 30% MSCI World.
|Medians||Q4 2018||Year 2018|
|Emerging Market Equities||-2.23%||-7.78%|