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Canada
Toronto, 23 July 2009

The second quarter of 2009 saw Canadian pension plans benefit from impressive asset returns as equities continued the rebound from their lows of early March. Also, Federal bond prices dropped during the quarter, reducing the solvency liabilities for pension plans, which are measured with reference to long-term bond yields. The Mercer Pension Health Index* increased to 71%, up 9% from the beginning of the second quarter and up 12% since the start of the year.

“The Canadian equity market outperformed its U.S. and International counterparts with the S&P/TSX Composite earning a strong 20% return, while a decline in the U.S. to Canadian dollar exchange rate partially offset the returns on U.S. equities,” said Yvan Breton, Leader of Mercer’s investment consulting business in Canada. “Overall, second quarter gains on pension plan assets bumped up the index by about 6%,” added Mr. Breton.

“The increase in federal long-term bond yields observed in April and May and the resulting drop in solvency liabilities accounted for about 3% of the upswing in the index,” said Paul Forestell, Professional Leader for Mercer’s retirement, risk and finance business.  “Conversely, corporate AA bond yields dropped substantially in May and June, resulting in an increase in the pension liabilities that companies report on their financial statements.”

A typical balanced portfolio would have returned 5.6% for the first half of 2009, and 8.9% for the second quarter. This return does not capture the impact from active management of any of the assets.

Canadian equities was the best performing asset class both for the year to date as well as the second quarter. The S&P/TSX returned 17.6% for the last 6 months and 20.0% for the last quarter.

• The best performing sectors in the first half of this year were Information Technology, Financials and Energy returning 55.9%, 26.3% and 21.4% respectively, according to the S&P/TSX sector indices. The worst performing sectors were Telecom Services (-8.3%), Utilities (1.4%) and Consumer Discretionary (2.4%).
• Small cap stocks returned 27.5% for the year to date (BMO Small Cap Blended Weighted Index), outperforming large cap stocks (S&P/TSX 60) which returned 18.3% during the first 6 months of this year. For the second quarter the BMO Small Cap Blended Weighted Index returned 25.8% and the S&P/TSX 60 returned 20.1%.
• Growth stocks outperformed value stocks as shown by the S&P/Citigroup BMI total return growth and value indices, which returned 21.9% and 16.6% respectively for the first half of this year. For the second quarter the growth index returned 18.5% and the value index returned 22.7%.

Canadian bond performance, as measured by the DEX Universe Bond index, returned 2.8% in the first 6 months of 2009, led by mid-term bonds which gained 4.2%, followed by long-term bonds (2.6%), and short-term bonds (2.4%). Real return bonds as measured by the RRB Overall Index had a comparatively high performance of 6.1% over the same period. For the quarter ended 30th June 2009, the DEX Universe Bond Index returned 1.3%.

The marked strengthening of the Canadian dollar shown in the second quarter versus most other major currencies had an overall negative impact on foreign equity indices for the first half of 2009. International and US equities returned 2.0% and -2.9% respectively during the first half of 2009, as represented by the MSCI EAFE and the S&P 500 indices. The local currency returns for the MSCI EAFE and the S&P500 were 5.6% and 3.2% respectively, for the six month period. 

For the quarter to 30th June 2009, the MSCI EAFE and the S&P 500 indices returned 16.2% and 7.0% respectively in Canadian dollar terms.

After a disastrous 2008, emerging markets continued to show its strength returning 28.2% (in Canadian dollar terms) in the first half of 2009 and 24.5% in the second quarter.

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