• Share
•  Delicious
•  Digg
•  Facebook
•  LinkedIn
•  Reddit
•  Twitter

Contact: Nancy Altilia
Tel: +1 416 868 2364

			E-mail this page				Print this page

Canada
Toronto, ON, 8 January 2009

The financial health of Canadian pension plans plummeted in 2008, as stock markets and interest rates declined sharply. The Mercer Pension Health Index fell to 59%, down 23% from the beginning of the year. 

“Most equity markets fell by more than 30% last year in local currency,” said Yvan Breton, Business Leader for Mercer’s investment consulting business in Canada. “Even for plans that benefited from the fall in the Canadian dollar because they did not hedge foreign currency exposure, pension fund assets were hit hard in 2008.”

“Pension plans experienced substantial losses on both sides of the balance sheet, with lower long-tem interest rates increasing liabilities,” said Paul Forestell, Retirement Professional Leader at Mercer. “The new rules for determining the lump sum value of pension entitlements, which many jurisdictions will allow to be used early for 2008 year-end solvency valuations, will only partially mitigate the losses, reducing liabilities generally by only a few percent.”

“Strangely enough, for many plans, corporate financial statements at year-end 2008 will show gains in pension plan funded status over the year, despite the investment losses.  As credit spreads have widened, rising corporate bond yields will result in lower disclosed pension obligations at year end,” noted Forestell. 

A typical balanced portfolio would have returned -14.1% during 2008 and -6.5% in the last quarter of 2008. This return does not capture any impact from active management of any of the assets.

Canadian bond performance, as measured by the DEX Universe Bond index, returned 6.4% in 2008 led by short term bonds which gained 8.6%, followed by mid term bonds (7.0%) and long bonds (2.7%). The DEX Universe Bond index returned 4.5% during the fourth quarter of 2008.

Canadian equity performance, as measured by the S&P/TSX Composite index, was the worst performing equity market in Canadian dollar terms, posting a return of -33.0%. Two thirds of this fall took place during the fourth quarter last year, when the S&P/TSX Composite returned -22.7%.

• Within the index, the three poorest performing GICS sectors were Information Technology, Financials and Consumer Discretionary with respective returns of
  -54.2%, -36.4% and -35.4%.
• Canadian small cap stocks underperformed large caps as shown by the BMO Small Cap Blended (weighted) index dropping by 46.6% and the S&P/TSX 60 index dropping by 31.2% during 2008. 
• Canadian value stocks outperformed growth stocks as shown by the S&P Canada BMI indices which returned -33.2% and -36.0% respectively in 2008.

The weakening of the Canadian dollar against the US dollar in 2008 had a positive impact on the U.S. and international index returns:

• In Canadian dollar terms, international equities, as measured by the MSCI EAFE index, provided a return of -28.8% in 2008.  In local currency terms the MSCI EAFE returned -39.9% over 2008. The Japan equity markets led with a -11.3% return whilst the Asia Pacific Region, ex-Japan significantly underperformed with a return of -37.5%  The MSCI EAFE returned -7.0% during the fourth quarter of 2008 in Canadian dollar terms.
• In the US, the S&P500 dropped by 21.2% (in Canadian dollar terms) in 2008, with value stocks outperforming growth stocks (Russell 3000 Value, -20.3% and Russell 3000 Growth, -23.0%).  In US dollar terms, the S&P500 returned -37.0%.  During the fourth quarter of 2008 the S&P500 returned -9.4% in Canadian dollar terms.
• Worth noting, after many years of stellar performances, emerging markets significantly underperformed in  2008 with a return of -41.4% (MSCI EM index) in Canadian dollar terms.

E-mail this page

Print this page

Contact: Nancy Altilia
Tel: +1 416 868 2364