TORONTO – (COMMERCIAL THREAD) – Canadian pension returns were slightly positive in the third quarter, as global equity markets weakened after falling in September, according to the Northern Trust Canada Universe.
A wave of disruptive forces clouded the stock and bond markets in September, including problems in China, the threat of rising inflation, slowing economic growth, the removal of central bank support and the impending debt ceiling of the US government. As a result of this underlying momentum, volatility resurfaced and global equity markets ended the quarter with mixed results.
The median Canadian Pension Plan returned 0.6% for the quarter ending September 30, with a cumulative return of 4.8%. “The third quarter was a reminder of how quickly volatility can spill over into financial markets and the resulting impact on pension plan returns. Plan sponsors have weathered the ebb and flow of the pandemic amid market volatility and continue to build resilience and further strengthen pension plans for long-term sustainability, ”said Katie Pries, President and Chief Executive Officer of Northern Trust Canada.
The Northern Trust Canada universe tracks the performance of Canadian institutional defined benefit plans that purchase performance measurement services as part of Northern Trust’s asset service offerings.
The third quarter of 2021 marked a period of heightened volatility which added to the uncertainty in the broader equity and fixed income markets. China’s heightened regulatory oversight, combined with financial distress from one of its major real estate developers, has caused financial markets to jump. In addition, investors remained focused on rising inflation, signals related to waning quantitative easing and the ability of the US government to avoid a possible government shutdown. Despite these growing headwinds of uncertainty, the global economic backdrop remained strong as corporate earnings delivered healthy results in developed markets throughout the quarter, complemented by an accommodating monetary policy environment.
Canadian stocks, as measured by the S & P / TSX Composite Index, ended the quarter with a modest gain of 0.2%, although the index hit record highs during the quarter. The healthcare, consumer discretionary, information technology and materials sectors were the main detractors, while all other sectors generated positive returns.
US stocks, as measured by the S&P 500 Index, advanced 2.9% in Canadian dollars for the quarter. The majority of sectors generated positive returns, with the exception of Industrials and Materials which ended the quarter in negative territory.
Developed international markets, as measured by the MSCI EAFE Index, generated 1.9% in Canadian dollars for the quarter, led by the energy and information technology sectors producing attractive returns. Financials, healthcare and industrials were also performing segments, while all other sectors were detractors for the quarter.
Emerging markets, as measured by the MSCI Emerging Markets Index, fell -5.9% in Canadian dollars for the quarter, impacted by the overall performance of China. The energy, financials and utilities sectors generated positive returns, while all other sectors contracted for the period.
The Canadian economy saw attractive job growth throughout the quarter, with 157,000 jobs created in September. The unemployment rate tended to fall to 6.9% in September from 7.8% in June. The Canadian stock market set new records as companies generated strong earnings, energy prices rose and the economic recovery continued to gain momentum. The government also extended various pandemic relief measures until October, which provided additional economic support. Prime Minister Trudeau retained his leadership, winning the Canadian federal election with another Liberal minority government.
The US economy created jobs, albeit at a declining pace throughout the quarter. Despite the dynamics of the US market in July and August, slowing economic growth, rising inflation, possible decline in quantitative easing, the potential for a government shutdown, and problems in China have become the focus. central point of the markets in September. The Federal Reserve has maintained its accommodative stance, keeping the key rate at 0.00% – 0.25%, as well as its monthly asset purchase program. The Federal Reserve Chairman has signaled that the reduction could be imminent if economic progress continues broadly as planned.
International markets generated positive returns for the quarter as monetary policy remained in accommodative mode. The European Central Bank (ECB) and the Bank of England (BoE) maintained their respective key rates during the quarter. The ECB announced a new inflation target of a symmetrical level of 2% and lowered its purchases for its Pandemic Emergency Purchase Program (PEPP) in order to meet its new inflation target.
Emerging markets contracted in the third quarter, largely impacted by the performance of China. A number of issues have emerged in China, including debt problems with a large real estate developer, increasing regulatory issues, slowing economic growth and a recent electricity crisis. The People’s Bank of China (PBOC) maintained its key rate but lowered its reserve requirement ratio during the quarter. The Bank of Korea raised its policy rate in the third quarter, making it the first Asian central bank to tighten monetary conditions.
The Bank of Canada (BoC) kept its overnight key rate at 0.25% during the quarter, but cut its quantitative easing program to C $ 2 billion per week. CPI numbers have tended to increase due to base year effects, rising gasoline prices and supply chain bottlenecks.
The Canadian fixed income market, as measured by the FTSE Universe Bond Index, contracted -0.5% for the quarter. The provincial sector had the weakest performance, followed by the federal and business sectors. Short and medium term bonds outperformed the long term segment which generated negative results for the period.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset services, asset management and banking services to businesses, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 22 US states and Washington, DC, and 23 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2021, Northern Trust had assets under custody / administration of US $ 15.8 trillion and assets under management of US $ 1.5 trillion. For more than 130 years, Northern Trust has distinguished itself as an industry leader for its exceptional service, financial expertise, integrity and innovation. Please visit our website or follow us on Twitter.