Overview of pension fund returns and financial markets-4th quarter 2018

SAI Balanced Funds Index

The quarter was marked by a stock market correction on the global stock market, which wiped out any gains accumulated during the year. The quarterly performance of the SAI Balanced Funds Index was -4.9%. 

Canadian Bonds

Despite an increase in short-term interest rates, medium and long-term interest rates have declined. Overall, the Canadian bond market, represented by the FTSE TMX Canada Universe Index, improved by 1.8% over the period. 

1. On October 24th, the Bank of Canada raised its overnight rate from 1.50% to 1.75%.
2. In December, the US Federal Reserve (Fed) also increased its key rate by 0.25%to 2.50%.
3. In terms of sector performances, the rate cut benefited federal bond yields (+2.5%), provincial bonds (+1.7%) and corporate bonds (+0.9%).

Canadian Equities

The Canadian stock market, represented by the S&P/TSX Index, plunged 10.1% during the quarter.  

1. Low oil prices and higher interest rates by the Bank of Canada led to the collapse of the Canadian market.
2. Only 3 of 11 sectors in the index posted a positive return for the quarter. At the forefront is the consumer staples sector (+5.7%), while the lowest ranked sector is the health sector (-35.5%).
3. The dip was larger in small-cap stocks than large-cap stocks. S&P/TSX Small Cap and S&P/TSX 60 Index returns were -14.4% and -8.9%, respectively.

Global Equities

The decline in global equities has eliminated accumulated gains since the beginning of the year. The MSCI World CAD Index recorded a quarterly loss of 8.5%, closing the year in negative territory (-0.5%). 

1. The weakening of the Canadian dollar against the US dollar mitigated investor losses when calculated in Canadian dollars (-8.5%) rather than local currencies (-13.1%).
2. The US market index, S&P 500 USD, lost 13.5% during the quarter. Various factors contributed to this decrease, including trade tensions with China, rising labour and material costs, and the decline in the price of a barrel of oil.
3. In terms of international equities (MSCI EAFE local currencies), the quarter was marked by uncertainties over Italy's fiscal policy and debt level. Overall, the index fell 12.2% in local currencies over the last three months.
4. Emerging markets (MSCI EM local currencies Index) plunged 7.4% during the quarter. In spite of this, their performance was still higher than that of developed markets.

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