Utilities, Real Estate Equities Fuel Canadian Pension Plans’ 5.1% Q3 Returns

Utilities and real estate equities propelled RBC Investor Services’ Canadian defined benefit pension clients to a median return of 5.1% for the third quarter that ended September 30, up from a 1.1% return in the previous quarter, according to the firm.

Global equities produced a 5.5% quarterly return, topping the MSCI World Index’s 5.0% return; global equities was buoyed by gains of 16.1% and 15.4%, respectively, for utilities and real estate equities. Meanwhile, information technology equities, which according to RBC has a large weighting among the universe of corporate and public funds, pared portfolios’ gains with a meager 0.2% return. The third quarter performance more than doubled the plans’ year-to-date return to 9.6% from 4.4% at the end of the first half.

In a reversal of the first half of the year, value stocks outperformed growth stocks in the third quarter, as reflected in the 8.2% return by the MSCI World Value Index, compared with the MSCI World Growth Index’s 2.2% return. This was a key factor in the plans’ robust quarterly gains, according to RBC, due to their client plans’ large exposure to value stocks. The MSCI Emerging Markets Index’s 7.3% quarterly return outperformed the developed market index, attributed mainly to a strong Chinese equity market.

As for Canadian fixed-income assets, the plans returned 4.9% for the quarter, just ahead of the FTSE Canada Universe Bond Index’s 4.7%, which, according to RBC, was due to the Bank of Canada’s consecutive interest rates cuts in 2024.

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Meanwhile, long-term bonds outperformed short-term bonds in the third quarter, as the FTSE Canada Long-Term Bond Index gained 5.7%, compared with a 3.4% return for the FTSE Canada Short-Term Bond Index.

“While this quarter marks improved returns for RBCIS DB pension plans, the report emphasizes the ongoing need for diversification and proactive risk management,” Isabelle Tremblay, head of RBC Investor Services’ asset owner segment, in a statement. “With the additional 50 basis points Bank of Canada rate reduction announced in October, and the US presidential election on the horizon, plan managers continue to adapt their strategies for the evolving pension landscape.”

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Tags: Canada, Defined benefit (db) pension plans, Equities, Isabelle Tremblay, IT, MSCI World Index, Pension, RBC Investor Services, Real Estate

Finnish telecom company Nokia Corp. appointed Mercer Investments, part of Mercer LLC, a Marsh McLennan company, as its outsourced CIO and investment fiduciary for its Nokia of America defined benefit pension funds, defined contribution retirement plan and other-post employment benefit portfolios, totaling nearly $30 billion, a spokesperson for Nokia confirmed Tuesday to CIO.

Jeanmarie Grisi, CIO of Nokia of America Corp., will retire from the company in March 2025, according to a source. She has worked at Nokia and its predecessor firm, Alcatel-Lucent, for nearly 25 years.

According to the plan year 2023 Form 5500 for the Nokia Retirement Income Plan, the company entered into an agreement with Mercer in July to outsource the asset management of its plans to the firm. The target date for the commencement of Mercer acting as the fiduciary manager of the plan was listed as October 1.

Nokia’s U.S. pension plan had $13.864 billion in assets under management, with 90,189 participants. Per Nokia’s Form 5500, the plan had 7,492 active participants, 61,934 participants retired or separated from the company and receiving benefits, and 20,763 retired or separated participants entitled to benefits in the future.

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The Nokia Savings/401(k) Plan, with $9.082 billion in assets and 25,956 participants, was also outsourced to Mercer as the plan’s 3(38) fiduciary investment manager, as were the OPEB obligations, which had assets valued at about $737 million, according to the company’s 2023 annual report and a company source.

As corporate pension funds continue a streak of funding surpluses, having more assets than they have liabilities, more are choosing to outsource the management of their assets.

According to CIO’s 2024 Outsourced Chief Investment Officer Survey, 30% of corporate pensions outsource or plan to outsource their assets to an OCIO provider. Among the reasons to outsource, across all types of plans, lack of internal resources was the top reason, followed by making faster implementations and decisions, as well as the need to increase returns.