Canadian defined benefit plans posted positive returns in the first quarter of 2019, according to data from the Northern Trust Canada Universe. Global equities rebounded following a volatile end to 2018 as the U.S. Federal Reserve, amid signs of a slowing global economy, reversed its position and signaled there would be no further rate hikes in 2019.
“The U.S. Federal Reserve acted as a catalyst to the rebound by taking a dovish position on its monetary policy, allowing global equity markets to rise,” said Arti Sharma, President and CEO of Northern Trust Canada. “Constructive trade talks between the U.S. and China further fueled investor confidence. Against this backdrop, Canadian plans posted a median return of 7.3 percent in the first quarter of 2019, versus the previous quarter return of -3.5 percent.”
The Northern Trust Canada Universe tracks the performance of Canadian institutional investment plans that subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.
Canadian Equities as measured by the S&P/TSX Composite Index posted a return of 13.3 percent in the first quarter. All sectors achieved positive returns with Health Care leading the gains with a return of 49.1 percent for the quarter. The strong gain in the Health Care sector is attributed to the rally in Cannabis stocks which had ended the prior year on a negative note. While weakness in Canada’s Energy sector continues to persist, Alberta’s mandatory production cuts assisted the Energy sector to record a gain of 15.6 per cent in the first quarter.
U.S. equity markets also saw a lift in the first quarter, with the S&P 500 Index recording a return of 11.2 percent in CAD. Six of the eleven sectors in the S&P 500 Index posted double digit returns. Information Technology was the top performing sector with a return of 17.2 percent performing at its highest level since 2012.
The MSCI EAFE Index, which measures the performance of international developed markets, returned 7.7 percent in CAD in the first quarter. The European Central Bank (ECB), reacting to a Europe-wide economic slowdown and continued geopolitical uncertainties, is expected to keep rates at current levels until the end of 2019. As with the U.S. equity market, Information Technology led the gains with a return of 12.9 per cent in the quarter.
While the MSCI Emerging Market index returned 7.6 per cent in CAD, weak macroeconomic data in Europe and China, and volatility in the Turkish Lira renewed pressure of a possible contagion effect and weighed against the market outlook.
The Bank of Canada lowered growth and inflation forecasts in January and kept rates at 1.75 per cent through the first quarter of 2019. FTSE Canada Universe achieved a 3.9 per cent return in the first quarter. Long term bonds recorded the larger gains than shorter term issues and Provincial and Corporate bonds outperformed their Federal counterparts.
Northern Trust – Canada
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