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Northern Trust Pension Universe Data: Canadian Pension Plans Posted Strong Returns for 2023 as Markets Surged in Fourth QuarterCanadian pension plans harnessed the strength of market momentum at the end of 2023, generating a median return of 8.4% for the fourth quarter. These solid results supported an annual median return of 10.0%, according to the Northern Trust Canada Universe. The final quarter of 2023 started on a weak note as heightened geopolitical tensions in the Middle East in early October caused financial markets concern. Notwithstanding the uncertainty created by these conflicts, markets welcomed news from monetary policymakers as many central banks pivoted their policy stance to a pause mode as inflation figures continued to soften relative to the highs witnessed earlier this year. Despite a slow start to the period, positive economic fundamentals combined with the shift in monetary narrative enabled equity markets to close the quarter on solid footing. As stocks finished on a high note, the bond market also reacted favorably to the monetary policy outlook as yields started a descent, allowing bond returns to regain strength and conclude the quarter, and the year in positive territory. "This past quarter and year were undoubtedly a period enfolded in a blanket of volatility. Notwithstanding the waves of uncertainty throughout the year, a focus on geopolitical and economic trends has been paramount for pension plans. As financial markets turned their attention to economic data driving their underlying pulse and pace, plan sponsors have increasingly adopted complex asset strategies that enhance portfolio diversification and drive long term sustainability of their investment programs. Understanding and navigating the current and future trends is a key building block to healthy retirement plans," said Katie Pries, President and CEO of Northern Trust Canada. 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 institutional investor asset servicing solutions. The fourth quarter presented challenges early on as geopolitical tensions rapidly escalated in the Middle East, cascading uncertainty across financial markets. Although these tensions lingered throughout the period, global markets shifted focus to the decelerating trend in inflation and the pausing of interest rate hikes by major central banks. Favorable macro-economic data coupled with a pivot in monetary tone set the stage for robust returns generated by both stocks and bonds for the period.
The U.S. economy continued to show signs of resilience as noted in recent GDP figures. The U.S. Federal Reserve (Fed) kept the Federal Funds Target Rate at 5.25% - 5.50% through the third quarter. Although the Fed continues to monitor its progress on inflation, in December its broader messaging indicated that policy members expect a pivot to lower rates in 2024. International markets also witnessed a move by central banks to keep interest rates steady during the quarter. The European Central Bank (ECB) moved to a wait and watch mode and the Bank of England (BOE) also kept rates steady at 5.25% despite ongoing inflationary pressures. The Bank of Japan (BoJ) maintained its key short term interest rate of -0.10%, and the 10-year bond yield at around 0%, though removing the 0.5% official cap and maintaining a loose upper band of 1.0%, during the quarter. Emerging Markets witnessed modest returns for the quarter, lagging their developed market counterparts. The People's Bank of China (PBOC) kept interest rates steady for the quarter, with their one-year loan prime rate at 3.45%. The Reserve Bank of India maintained its interest rates for the quarter, meanwhile Brazil cut interest rates in December by 50 basis points to 11.75%. The Bank of Canada (BoC) held interest rates steady at 5.0% during the quarter, marking a 22-year high. The BoC governor agreed the Canadian economy is showing balance in supply and demand and further rate hikes might not be warranted. However, the outlook for inflation still concerns policy makers and they are "prepared to raise the policy rate further if needed." The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index, advanced 8.3% for the quarter and 6.7% for the year. Provincial bonds outperformed Corporate and Federal bonds for the quarter, while Corporate bonds were the top performer for the year. In terms of movement across bond durations, long term bonds led performance for the quarter advancing 14.8% and outpaced short and mid-term bonds for the year. 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 24 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2023, Northern Trust had assets under custody/administration of US$15.4 trillion, and assets under management of US$1.4 trillion. For more than 130 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit us on northerntrust.com. Follow us on X (formerly Twitter) @NorthernTrust or Northern Trust Corporation on LinkedIn. Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/terms-and-conditions.
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