“The market has experienced increasing economic and geopolitical uncertainties during the first quarter of 2022,” Niki Zaphiratos, managing director, asset owners, RBC Investor & Treasury Services, said in a statement. “Russia’s invasion of Ukraine has amplified existing investor anxiety over rising inflationary pressures and the Covid crisis.”
The MSCI World Index returned -6.2% in the first quarter, and foreign equities in the RBC Global Plan universe returned -7.5%. The strong Canadian dollar compounded some of the local currency losses for unhedged plans, RBC Investor & Treasury Services said.
The Canadian stock market (composite S&P/TSX +3.8%) benefited from its high exposure to commodities and was the only developed stock market to end in positive territory during the quarter. Canadian stocks held by the plans outperformed the broad market index and gained 3.9%, RBC said.
Within fixed income, bond yields rose sharply across the yield curve in the first quarter as central banks signaled aggressive action to combat inflationary pressures.
The FTSE Canada Universe Bond Index lost 7.0% during the quarter, as longer-term bonds underperformed shorter-term bonds. The FTSE Canada long-term bond index returned -11.7%; FTSE Canada Short Term Bond Index, -3.0%
The median Canadian fixed income universe return for all RBC plans was -9.8%.
“The current geopolitical risk has added to the headwinds facing pension plans – and we are now looking at the possibility of a sharp rise in interest rates which could lead to the devaluation of risky assets,” Zaphiratos said. “Plan sponsors will need to tread carefully in the months ahead.”
Despite negative returns last quarter, solvency has improved for most Canadian DB plans, Mercer Canada said earlier this month. Due to rising bond yields, the median DB solvency ratio in Mercer Canada’s database rose five percentage points in the quarter to 108%, the highest funded ratio since 2008 .