Overview of pension fund returns and financial markets-2nd quarter 2019

SAI Balanced Funds Index

Stock markets experienced ups and downs during the quarter. Nonetheless, they continued their momentum and the SAI Balanced Funds Index increased by 2.3%. 

Canadian Bonds

The return of trade tensions, following the imposition of a wave of tariffs on several Chinese goods imported into the United States, led the US Federal Reserve (Fed) to change its tune and hold a discourse that foreshadowed cuts in its key rate in the future in order to support economic growth. In this climate of uncertainty and with the potential decline in interest rates, the Canadian bond market posted a positive return of 2.5% over the quarter (FTSE TMX Canada Universe Index). 

1. The Bank of Canada has decided to maintain the overnight rate at 1.75% twice, at its meetings on April 24 and May 29, 2019.
2. Similarly, the Fed left its key rate unchanged at 2.50% during the quarter.
3. In terms of sector performance, the rate cut benefited provincial bond yields (+3.4%) more than corporate bonds (+2.7%) and federal bonds (+ 1.5%).

Canadian Equities

The growth of the Canadian stock market, represented by the S&P/TSX benchmark, has been in the order of 2.6% over the last three months.  

1. Oil prices were down during the quarter due to uncertainties in trade and weak global demand. It follows that the energy sector fell by 3.9%.
2. The best performing sector was information technologies (+14.3%). On the other hand, stocks in the health care sector had the worst performance of the index (-9.3%), mainly due to the stocks of cannabis companies.
3. Large-cap stocks were profitable (S&P/TSX 60: +3.0%) for Canadian investors, while small-cap stocks posted losses (S&P/TSX Small Cap: -0.3%).

Global Equities

The quarterly performance of global equities, represented by the MSCI World Index (CAD$), was + 1.73%. 

1. Economic news and reduced capital flows to US fixed income securities contributed to the appreciation of the Canadian dollar relative to the US dollar. As a result, investors' earnings, when calculated in Canadian dollars, were 1.7% rather than 3.6% in local currencies.
2. The US market index, the S&P USD 500, gained 4.3% during the quarter. Despite trade tensions, low interest rates have favored riskier assets.
3. The MSCI EAFE Index (local currencies) climbed 2.8% over the past three months. The rise in the market continued in the second quarter, supported by economic results beyond expectations.
4. Emerging market equities posted a modest quarterly return of +0.20% (MSCI EM Index, local currencies). Despite the measures taken by the US government towards China, government statements suggest that an agreement between the two countries is still possible.

¹ The composition of the SAI Balanced Funds Index is 40% FTSE TMX Universe, 30% S&P/TSX and 30% MSCI World.