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Northern Trust Pension Universe Data: Equities Drive Robust Returns for Canadian Pension Plans in Q4 2021

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TORONTO, January 27, 2022--(BUSINESS WIRE)--Canadian Pension Plans generated attractive returns in the fourth quarter of 2021, driven by a strong rebound in global equity markets, according to the Northern Trust Canada Universe. The median plan in the Universe returned 3.8% in the fourth quarter and 8.4% for the year in 2021.

Financial markets surged forward in the fourth quarter, with a focus on traditional fundamentals and continued economic recovery against a turbulent backdrop. The final quarter of 2021 saw yet another powerful coronavirus variant accelerating rapidly across the globe. At the same time, rising energy prices coupled with escalating inflation caused many central banks to recalibrate their tone relating to stimulus and monetary policy measures. Although the change in monetary sentiment sparked volatility along the yield curve, Canadian bonds finished the quarter in positive territory and Canadian equities had strong gains.

"These are impressive results in the wake of a rapidly changing landscape. Canadian plan sponsors have adapted well as we advance through the pandemic, while transitioning through windows of uncertainty along the course," said Katie Pries, President and CEO of Northern Trust Canada. "This adaptability has revealed the strength and resilience of Canadian pension plans today, as evidenced by their solid investment returns. As pension plans continue to harness this resilience, they will be well positioned, shaping the path for future prosperity."

The Northern Trust Canada Universe tracks the performance of Canadian institutional defined benefit plans that subscribe to performance measurement services as part of Northern Trust’s asset service offerings.

Monetary policy and its directional trend became a primary focal point throughout the fourth quarter. As inflation readings continued to move higher, many major central banks advanced the pace of unwinding previously implemented accommodative programs in an effort to remove some monetary stimulus from the economic system. Financial markets digested the transition well, with equities advancing higher throughout the quarter anchored by the support of healthy corporate earnings and profit margins as well as a low interest rate environment.

  • Canadian Equities, as measured by the S&P/TSX Composite Index, advanced 6.5% for the quarter and 25.1% for the year. The Materials sector was the top gainer for the quarter while the Energy sector led performance for the year. Health Care was the largest detractor for both the quarter and the full year.

  • U.S. Equities posted strong gains with the S&P 500 Index generating 10.7% in CAD for the quarter and 27.6% in CAD for the year. All sectors with the exception of Communication Services finished the quarter with positive results. Double digit returns were achieved for every sector for the year, with Energy leading the index.

  • International developed markets, as measured by the MSCI EAFE Index, returned 2.4% in CAD for the quarter and 10.8% in CAD for the year. The majority of sectors posted positive results for the quarter and the full year. The Utilities and Materials sectors led performance for the quarter, while Communication Services, Energy, and Real Estate were detractors for the period. Energy was the leading sector for the year, with Communications Services and Utilities witnessing declines.

  • The MSCI Emerging Markets Index declined 1.5% in CAD for the quarter and concluded the year with a -3.1% return in CAD. Information Technology and the Utilities sectors achieved positive returns for the quarter while all remaining segments posted negative results. Energy and the Utilities sectors led performance for the year, while Consumer Discretionary, Real Estate and Health Care sectors were the largest detractors for the twelve month period.

The Canadian economy continued on an expansionary path throughout the fourth quarter as noted by the GDP figure produced in October and the estimate of GDP growth provided by Statistics Canada for November. Supply chain disruptions and elevated gasoline prices contributed to higher inflation as Canadian inflation witnessed a 30-year high in December reaching 4.8% year over year (not seasonally adjusted). Progress was also observed in the labour market with 240,000 jobs added during the fourth quarter, resulting in an unemployment rate of 5.9%, a healthy improvement from the 6.9% posted in September.

The U.S. economy continued to surge forward throughout the quarter despite uncertainty surrounding another coronavirus variant. The economy observed healthy job creation over the quarter with the unemployment rate dropping to 3.9% from the 4.7% recorded during the previous quarter. The U.S. Federal Reserve ("The Fed") maintained the federal funds target range at 0 – 0.25%, however it accelerated its tapering process of bond purchasing. In an effort to combat inflation, the Fed also communicated its forecast for potential for three interest rate hikes in 2022.

International markets have benefitted from relief measures enacted throughout the pandemic. In an effort to stabilize inflation, The Bank of England (BoE) raised its benchmark interest rate to 0.25%. This represents its first interest rate hike in 3 years. The Bank of Japan (BOJ) meanwhile maintained its overnight interest rate, but chose to reduce other pandemic funding measures. Meanwhile, the European Central Bank (ECB) noted it expects to reduce bond purchases through its Pandemic Emergency Purchase Programme (PEPP), but will be continuing bond purchases under a separate Asset Purchase Programme as long as required to reinforce their policy rates.

Emerging markets posted declines throughout the quarter, a sharp contrast to its developed markets counterparts. The People’s Bank of China (PBoC) reduced the one year loan prime rate to 3.8% from 3.85% providing further support to the banking system. The Central Bank of Brazil implemented two interest rate hikes during the quarter taking the overnight rate to 9.25% as it continued to combat inflation. The Reserve Bank of India, however, maintained their overnight interest rate throughout the period.

The Bank of Canada (BoC) maintained its overnight interest rate at 0.25%. In an effort to sustainably achieve its 2% inflation target, the BoC concluded its bond purchasing program and pivoted toward its reinvestment phase. The central bank also acknowledged elevated inflation levels as a result of supply constraints as well as renewed uncertainty surrounding the Omicron variant.

The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index, advanced 1.5% for the quarter but witnessed a decline of 2.5% for the year. Provincial bonds led performance for the quarter followed by Corporates and Federals. The reverse of this pattern occurred for the one year period as Corporate bonds declined the least, followed by Federals and Provincials. During the quarter, long term bonds outperformed mid-term and short term bonds. Opposite results occurred for the year with Short term bonds showing a modest detraction and long term bonds posting the largest decline.

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 22 U.S. states and Washington, D.C., and across 23 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2021, Northern Trust had assets under custody/administration of US$16.2 trillion, and assets under management of US$1.6 trillion. For more than 130 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Please visit our website or follow us on Twitter.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Please read our global and regulatory information.

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