“Discretionary fund returns were generally very good over 2004. However, these failed to impact the overall health of Canadian pension schemes, as their liabilities also rose due to declining long bond yields during the year,” said Peter Muldowney, Principal for Mercer Investment Consulting in Canada.
This picture is reflected in Mercer’s Canadian Pension Health Index, an indicator of the impact of capital markets on the financial position of Canadian pension plans. The index was 89% on 31st December 2004, identical to its level on 31st December 2003. The index rose slightly from 88% in October 2004.
Additional results from Mercer’s survey for the fourth quarter of 2004:
§ All major asset classes posted positive returns during the fourth quarter and for all of 2004.
§ Canadian equities were the best performing asset class for 2004 with the S&P/TSX Composite index returning 14.5% for the entire year. The index returned 7.2% during the last quarter. Value and growth stocks performed very well over both periods.
Canadian equity managers boasted impressive returns, beating the index by 0.2% over the last quarter, and 1.2% for the year. Mid Cap stocks were the best performers both during 2004 and the last quarter, returning 22.8% and 9.6% respectively, as shown by the S&P/TSX Mid Cap index. Small Cap stocks were the poorest Canadian equity performers but still posted positive returns of 6.5% during 2004 and 6.9% over the quarter, as shown by the S&P/TSX Small Cap index. The S&P/TSX 60, indicating large cap performance, returned 13.8% and 6.7% over the year and the last quarter, respectively.
§ International equities was the next best performing asset class, with the MSCI EAFE returning 11.9% in Canadian dollar terms during 2004. The index returned 9.2% during the last quarter. International equity managers struggled to keep pace with the index during 2004, underperforming the index by 1.7% during the year and by 0.9% over the fourth quarter.
§ The Scotia Capital Universe index returned 7.1% during 2004, and 3.1% over the last quarter. The median manager underperformed the index by 0.1% during the quarter but outperformed it by 0.1% for 2004 as a whole. The Scotia Capital Long Term Overall index returned 10.3% over 2004 and 4.9% in the last quarter. Real return bonds had a stellar performance over 2004 of 17.5%, and 5.1% during the last quarter.
§ US equities were the poorest performing asset class posting a return of 2.8% over 2004, and 3.4% during the last quarter, as shown by the S&P 500 index (in Canadian dollar terms). The median US equity manager matched the index during the year and outperformed it by 0.4% in the last quarter. The returns for this asset class were heavily impacted by the continuing weakening of the US dollar vis-à-vis the Canadian dollar: The US dollar returns for the S&P 500 were 10.9% for the year and 9.2% for the quarter.
Information on the Mercer universe statistics and on the Mercer Pension Health Index is available quarterly at www.mercerIC.com.
Mercer Investment Consulting is a leading provider of investment consulting services - such as investment strategy, including asset allocation, portfolio structure, investment policy, manager searches, and performance evaluation - to the fiduciaries of pension funds, foundations, endowments, and other institutional funds. Mercer Investment Consulting is part of Mercer Human Resource Consulting, which is part of Mercer Inc., a wholly owned subsidiary of Marsh & McLennan Companies, which lists its stock (ticker symbol: MMC) on the New York, Chicago, Pacific, and London stock exchanges.Visit Mercer Investment Consulting online at www.mercerIC.com.