Overview of pension fund returns and financial markets -3rd quarter 2020

SAI Balanced Funds Index

Following a spectacular rebound in the second quarter, markets continued to rise in the third quarter. The SAI Balanced Funds Index climbed 3.4%, reflecting investors' optimism in the economic recovery and the potential availability of a vaccine in the coming months. 

Canadian Bonds

On the Canadian bonds side, the performance was rather neutral: the yield curve steepened a little, with short-term and medium-term rates falling by a few points while long-term rates rose slightly. The Canadian bond market index, the FTSE TMX Canada Universe, rose 0.4% during the period. 

1. During its meetings in July and September, the Bank of Canada reiterated its desire to keep its overnight rate at the same level it set in March, at 0.25%, as well as to continue its bonds purchase programs.
2. At the sector level, all sectors saw a drop in their yield to maturity rate. This drop was most noticeable in corporate bonds and therefore more profitable for the latter's returns (+1.3%) than for that of provincial (+0.1%) and federal (+0.0%) bonds.
3. The increase in long-term rates resulted in a negative return for bonds with a long-term maturity (-0.3%), while the rate drop for other maturities was beneficial for short and medium-term bonds, which rose 0.7% and 1.1% respectively.

Canadian Equities

Investors’ optimism for a resurgence in Canadian economic activity was reflected in the Canadian equity market index, the S&P/TSX, with an increase of 4.7% in the past three months. 

1. The effects of the end of the nationwide lockdown and of government and fiscal measures to stimulate the economy were reflected in the industrial sector, which had the best quarterly performance (+13.6%). With the exception of the energy (-8.1%) and health (-14.3%) sectors, which suffered significant losses, all sectors gained ground.
2. For a second consecutive quarter, Canadian large-cap stocks (+4.4%) underperformed small-cap stocks (+6.6%). Nonetheless, year-to-date, large-cap stocks exceed small-cap stocks.

Global Equities

Global stock markets in developed countries hit new highs during the quarter. The benchmark index, the MSCI World, posted a return of 6.7% in local currencies. That said, returns have been very different across the various sectors of the economy as well as for stocks with different characteristics. One way to outline this disparity is to compare the return of the MSCI World Value Index in local currencies (+2.60% for the quarter and -15.2% year-to-date) with that of the MSCI World Growth Index in local currencies (+10.5% for the quarter and +18.1% year-to-date).

1. The Canadian dollar increased value in comparison to all MCSI World Index currencies as a whole. This had the effect of reducing the index’s return in Canadian dollars (+5.8%) compared to that calculated in local currencies (+6.7%).
2. The S&P 500 USD, which represents the US market index, continued its climb, posting a return of 8.9% in the quarter. The considerable fiscal stimuli have strongly contributed to this: economic data show a sharp increase in household consumption, for which government transfers are more important than income losses.
3. The MSCI EAFE Index (local currencies), which primarily represents the Global stock markets in developed countries with the exclusion of Canada and the United States, saw a modest quarterly gain of 1.2%.
4. Emerging markets, represented by the MSCI EM Index in local currencies, jumped 8.7% over the period. Among the top performers is that of China, which has seen COVID-19 increase its market share in global trade.

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