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Pensions

Canadian Pensions Returned 2.5% in the First Quarter

Equity returns were strong, but the plans’ fixed income investments lagged.
By Matt Toledo



Canadian institutional defined benefit plans returned 2.5% in Q1 2024, according to the Northern Trust Canada Universe, a tracker which measures the performance of Canadian DB plans that are subscribed to Northern Trust’s performance measurement services. 

Inflation and monetary policy were front and center during the first quarter. “The transition through interest rate cycles within the economic ecosystem quite often can be a challenging path,” said Katie Pries, president and CEO of Northern Trust Canada, in the firm’s news release.

The biggest driver of Canadian DB returns in the first quarter were U.S. equities, measured by the S&P 500, which returned 13.5% in Canadian dollars with the “magnificent seven”—the celebrated list of U.S. tech giants—driving most of these returns.

Canadian equities increased 6.6% in the quarter, as reflected by the S&P/TSX index, with health care the best-performing sector, followed by energy and industries. Of Canadian equities, communications and utilities were the worst-performing sectors, both posting negative returns.

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International developed markets returned slightly better than the Canadian market, posting 8.7%, per the MSCI EAFE Index: information technology and consumer discretionary provided the strongest returns, while utilities and consumer staples had the lowest returns.

In emerging markets (measured by the MSCI Emerging Markets Index) returned 5.1%. Information technology offered double-digit returns while real estate was the worst performing sector. According to Northern Trust, weakness in Chinese equities were responsible for lackluster returns.

Canadian fixed income returned negative 1.2% in the first quarter, with provincial and federal bonds seeing declines, and corporate bonds posting small returns. Stronger-than-expected economic data and uncertainty over monetary policy pushed the yield curve higher, resulting in negative returns for Canadian bonds.

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Home > News > Newsmakers > Economy Is Doing Fine, So Fed Shrinks Its Balance Sheet
Newsmakers

Economy Is Doing Fine, So Fed Shrinks Its Balance Sheet

Policymakers don’t want a repeat of 2019, when QT ruffled the markets.

By Larry Light

Quantitative tightening will loosen a bit, the Federal Reserve announced Wednesday, even as it left its benchmark interest rate unchanged at a range of 5.25% to 5.50% for its policymaking panel’s sixth straight meeting.

The Federal Open Market Committee lowered the ceiling on the amount of Treasury securities rolling off its balance sheet by almost 60%, to $25 billion each month from $60 billion, starting in June. The FOMC kept the pace of runoffs for mortgage-backed securities at $35 billion monthly, and will reinvest principal from maturing MBS into Treasuries, rather than back into MBS, which are expiring more quickly than expected on their own.

QT, shrinking the amount of Fed holdings, dials back stimulus to economic growth, which has been robust enough in the eyes of the Fed. This is the opposite of the earlier policy of quantitative easing, buying Treasuries and MBS, to bolster the economy as the Fed also hiked interest rates to fight surging inflation.

The Fed began reducing its balance sheet—by allowing securities to mature and not reinvesting the proceeds—in mid-2022. The balance sheet dropped to $7.4 trillion in April 2024 from $8.9 trillion in June 2022. In January 2020, right before the pandemic took hold, the Fed held $4.1 trillion. From then it expanded as the central bank bought Treasury bonds and MBS to pump cash into the economy.

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Minutes of the FOMC’s March meeting showed policymakers wanted to be cautious about QT, in light of market turbulence in 2019—the last time the Fed shrank its portfolio.

The Fed has not indicated just how long the QT process will continue this time and at what level of holdings it will settle. A recent New York Fed report said the QT process could continue into mid-2025, with the balance sheet landing at around $3 trillion. “This adjustment doesn’t mean QT is ending anytime soon, only that a smoother ride is likely,” wrote Jack McIntyre, portfolio manager at Brandywine Global, in an analysis of the Fed’s meeting.

In his congressional testimony last week, Federal Reserve ChairJerome Powell restated that the Fed is in no hurry to cut rates until it is sure it has tamed inflation. With a strong economy and labor market, the Fed has the flexibility to see whether inflation is headed back to policymakers’ 2% goal before slicing rates.

 

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