Overview of pension fund returns and financial markets-4th quarter 2019

SAI Balanced Funds Index

As Canadian bonds lost ground during the quarter, the stock market reached new heights. The quarterly performance of the SAI Balanced Funds Index was 2.5%, enabling it to end the year in net positive territory, with a cumulative return of 16.0%. 

Canadian Bonds

The yield curve flattened during the quarter due to higher interest rates on 5 to 10 year maturities compared to those on shorter and longer term maturities. Widespread rate hikes were reflected in the performance of Canadian bonds, represented by the FTSE TMX Canada Universe Index, which fell 0.9% during the period. 

1. During its meetings on October 30 and December 4, 2019, the Bank of Canada decided to maintain the overnight rate at 1.75%.
2. On the US Federal Reserve (Fed) side, the latter decided to lower its policy interest rate from 2.0% to 1.75% on October 30. However, its narrative has changed: it’s no longer focusing on supporting economic growth, but rather on continuing to assess the appropriate rate levels for federal funds.
3. Among the different Canadian universe bond sectors, corporate bonds posted modest gains (+0.1%), while federal and provincial bonds fell 1.1% and 1.3%, respectively.

Canadian Equities

Easing trade tensions and investor expectations for an economic recovery were felt on the Canadian market, whose index, the S&P/TSX, posted a solid quarterly performance (+3.2%).  

1. Oil prices have been volatile in the last three months, with prices virtually reaching the low January in August, to finally rising in mid-September after the attack on Saudi Arabia's oil infrastructure, to close the quarter below last June's level. Nevertheless, the energy sector gained 1.2% over the quarter.
2. The energy sector’s performance (+7.1%), up following the geopolitical tensions in the Middle East which pushed up the price of a barrel of oil, strongly contributed to the performance of the index.
3. In terms of sectors, 7 sectors progressed during the quarter, led by the Information technology sector (+10.8%) while 4 sectors fell, more particularly the health sector (-5.9%).

Global Equities

The majority of developed markets delivered solid results during the period. The MSCI World Index was +7.5% in local currencies. 

1. The index's return was lower in Canadian dollars (+6.3%) as the Canadian dollar appreciated against most currencies during the quarter.
2. The US market index, the S&P 500 USD, has climbed 9.1% in the past three months. The announcement of a partial trade deal with China and lower interest rates contributed to the solid performance of US equities, particularly in the technology sector.
3. The MSCI EAFE Index (local currencies) has risen 5.2% in the past three months. In the euro zone, a potential Brexit resolution in 2020, low interest rates and central bank stimuli contributed to the region's good quarterly performance.
4. All emerging market equities, represented by the MSCI EM Index in local currencies, appreciated by more than 9.5% during the last quarter, following the announcement of phase 1 of the trade agreement between China and the United States targeting a wave of tariffs on imports of Chinese goods.

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