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.

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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