INVESTMENT PERFORMANCE SURVEY OF CANADIAN INSTITUTIONAL POOLED FUNDS SUMMARY

Transcription

1 H ENot A L T H WPeer E A L T H Reviewed C A R E E R INVESTMENT PERFORMANCE SURVEY OF CANADIAN INSTITUTIONAL POOLED FUNDS SUMMARY PERIOD ENDING 3/9/21

2 IMPORTANT NOTIFICATION FINAL RELE ASE OF SUMMARY PUBLICATION Please note this 3Q-21 Summary of Investment Performance Survey of Canadian Institutional Pooled Funds is the final release of this quarterly summary publication. To inquire about continuing to receive this information in an alternative format, either via the full version of the Investment Performance Survey of Canadian Institutional Pooled Funds or through MercerInsight, please contact 1

3 COMMENTARY Tough summer for pension plans The solvency position of Canadian pension plans decreased in the third quarter of 21. The Mercer Pension Health Index, which represents the solvency ratio of a hypothetical plan, stands at 93% on September 3th, down from 98% at June 3th; and 94% at the beginning of the year. The median solvency ratio of the pension plans of Mercer clients stood at 87%, down from 92% at the beginning of the third quarter, and 9% at the beginning of the year. Proportion of plans Distribution of the estimated solvency ratios of Mercer clients (covering 6 plans) at January 1, 21 and September 3, 21 % 4 % 4 % 3 % 3 % 2 % 2 % 1 % 1 % % % 1/1/21 9/3/21 Solvency Ratio Both the key drivers of pension health equity market returns and long-term interest rates went in the wrong direction over the summer. Equity markets were firmly in negative territory for the third quarter and long-term government bond yields declined by around 1 basis points since June 3. For plans which do not hedge their foreign asset exposure, the drop in solvency ratio was somewhat buffered by the continued decline in the Canadian dollar. Many organizations remain more exposed to pension risk than they would like to be. Organizations that have been counting on a rise in long-term interest rates have been disappointed for the better part of the last decade. We think it is time for pension plan sponsors to develop a robust risk management strategy that is less reliant on a hope that interest rates will rise. The solvency position of pension plans will decline further in the fourth quarter by about 1% to 2% as a result of a new mortality table being adopted by regulators as the basis for determining the value of lump sum benefits paid to pension plan members. A typical balanced pension portfolio would have returned -2.4 per cent during the third quarter. Detailed market returns for the quarter and bond yields are shown in the table beside. Equity markets had a poor performance during the third quarter. The US equity market posted a return of -6.4% (in USD terms), while the EAFE markets returned -8.9% (in local currency terms). Due to the declining Canadian dollar relative to the US dollar and the Euro, US equity and EAFE markets returned.% and -3.% respectively in Canadian dollar terms. Canadian equities had a similar fate with a return of -7.9% for the quarter, led downward by negative performance in a number of important sectors including Materials, Energy and Health Care. Emerging markets equity exposure provided a crushing return of -11.7% (measured in Canadian dollar terms) over the same period. The Canadian yield curve remained mostly at the same level this summer. A variety of factors including lower prices of commodities and oil, uncertainty from the Fed regarding a rate increase, another surprise rate cut from the Bank of Canada moving from.7 to. and Canada officially entering a technical recession pressured the curve downward. However, that was balanced by an increase in credit spreads. Although the Health Care sector has given up some ground in the third quarter, it still had an extraordinary year 21. On the other hand, weaknesses in commodities and oil led the Energy and Materials sectors to deliver particularly poor returns this quarter. Large cap stocks outperformed small cap stocks in the third quarter and value stocks outperformed growth stocks. In the third quarter, emerging markets erased all positive returns delivered in the first two quarters of the year. The Canadian dollar continued its decrease compared to the U.S. dollar in the third quarter. MARKET RETURNS QTR YTD Canadian Equities Consumer Staples 8.% 11.% Information Technology 2.8% 4.7% Telecom Services 2.7%.3% Utilities 2.4% -2.2% Industrials -2.1% -1.% Financials -3.1% -3.3% Consumer Discretionary -3.6% 3.9% Health Care -1.6% 33.7% Energy -17.2% -21.6% Materials -24.% -23.9% Canadian stocks (S&P/TSX Composite) -7.9% -7.% Large cap stocks (S&P/TSX 6) -6.7% -6.2% Small cap stocks (S&P/TSX SmallCap) -1.2% -14.3% Grow th stocks (S&P Canada BMI Grow th) -9.% -7.9% Value stocks (S&P Canada BMI Value) -8.4% -7.7% Foreign Equities U.S. (S&P CAD).% 9.6% International (MSCI EAFE CAD) -3.% 1.1% Emerging Markets (MSCI Emerging Markest CAD) Canadian Bonds -11.7% -1.9% FTSE TMX Canada Universe.1% 2.% FTSE TMX Canada Long Term -.1% 2.1% FTSE TMX Canada RRB -1.3% 2.1% Canadian Dollar CAD vs USD (per 1 CAD) -6.9% -13.6% BOND YIELDS 9/3/21 6/3/21 12/31/214 FTSE TMX Canada Universe 2.% 2.% 2.2% FTSE TMX Canada LT 3.2% 3.1% 3.2% FTSE TMX Canada LT Federal 2.2% 2.3% 2.3% 2

4 Period Ending September 3, 21 Balanced th Percentile st Quartile MERCER Median rd Quartile th Percentile Passive Portfolio Number of Funds Total Market Value (CAD billion) 27. Effective January 1, 22, the passive portfolio comprises: 42.% FTSE TMX Canada Universe Bond, 2% S&P/TSX Composite, 1% S&P (CAD), 1% MSCI EAFE (CAD), and 2.% FTSE TMX Canada 91 Day T-Bills Balanced (Diversified Income) th Percentile st Quartile MERCER Median rd Quartile th Percentile Passive Diversified Income Pf Number of Funds Total Market Value (CAD billion) 21.2 The passive portfolio comprises: 7% S&P/TSX Equity Income and 3% FTSE TMX Canada Universe Bond Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 3

5 Period Ending September 3, 21 Target Date Retirement Portfolio th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) 2. It is noted that the underlying funds may not be similar in nature with the exception that they are targeting retirees. 1 - Target Retirement Date 21 th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 4

6 Period Ending September 3, 21 Target Retirement Date 22 th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) These funds are grouped by the target retirement date set by the provider. It is noted that the underlying funds may not be similar in nature with the exception that they are targeting a common future retirement date. Target Retirement Date 22 th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year.

7 Period Ending September 3, 21 Target Retirement Date 23 th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) These funds are grouped by the target retirement date set by the provider. It is noted that the underlying funds may not be similar in nature with the exception that they are targeting a common future retirement date. Target Retirement Date 23 th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 6

8 Period Ending September 3, 21 Target Retirement Date 24 th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) These funds are grouped by the target retirement date set by the provider. It is noted that the underlying funds may not be similar in nature with the exception that they are targeting a common future retirement date. Target Retirement Date 24 th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 7

9 Period Ending September 3, 21 Target Retirement Date 2 th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) These funds are grouped by the target retirement date set by the provider. It is noted that the underlying funds may not be similar in nature with the exception that they are targeting a common future retirement date. Target Risk (Conservative Income) th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) 6. These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from % - < 27.% are grouped in this category Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 8

10 Period Ending September 3, 21 Target Risk (Conservative Growth) th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) 6.6 These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from 27.% - < 47.% are grouped in this category Target Risk (Moderate Growth) th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) 1.8 These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from 47.% - < 67.% are grouped in this category Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 9

11 Period Ending September 3, 21 Target Risk (Aggressive Growth) th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) 7. These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from 67.% - < 87.% are grouped in this category Target Risk (Maximum Growth) th Percentile st Quartile MERCER Median rd Quartile th Percentile Number of Funds Total Market Value (CAD billion) 2.8 These funds are grouped based on the equity ranges (including Real Estate if applicable) specified by the policy benchmark of the respective funds. Funds with equities ranging from 87.% - 1% are grouped in this category Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 1

12 Period Ending September 3, 21 Canadian Equity th Percentile st Quartile MERCER Median rd Quartile th Percentile S&P/TSX Composite Number of Funds Total Market Value (CAD billion) Repeated strategies are excluded in this universe. Only the most representative product is included if several products of the same strategy are offered. Funds can reasonably be benchmarked to the S&P/TSX Capped Composite index or near equivalent and show a high correlation thereto. Funds must be classified by style as Core, Growth-biased or Value-biased. Funds must be 1% Canadian investments. Funds must be broadly diversified, in at least of the 1 industry sectors. Funds must be large to large/mid capitalization. Funds classified as Responsible Investment, Income-oriented or Extension are not included. Canadian Equity (Core) th Percentile st Quartile MERCER Median rd Quartile th Percentile S&P/TSX Composite Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 11

13 Period Ending September 3, 21 Canadian Equity (Growth Biased) th Percentile st Quartile MERCER Median rd Quartile th Percentile S&P/TSX Composite Number of Funds Total Market Value (CAD billion) Canadian Equity (Value Biased) th Percentile st Quartile MERCER Median rd Quartile th Percentile S&P/TSX Composite Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 12

14 Period Ending September 3, 21 Canadian Equity (Responsible Investments) th Percentile st Quartile MERCER Median rd Quartile th Percentile S&P/TSX Composite Number of Funds Total Market Value (CAD billion) Canadian Equity (Income Oriented) th Percentile st Quartile MERCER Median rd Quartile th Percentile S&P/TSX Composite Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 13

15 Period Ending September 3, 21 Canadian Fixed Income (Universe) th Percentile st Quartile MERCER Median rd Quartile th Percentile FTSE TMX Canada Universe Number of Funds Total Market Value (CAD billion) Canadian Fixed Income (Credit) th Percentile st Quartile MERCER Median rd Quartile th Percentile FTSE TMX Canada Univ Corp Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 14

16 Period Ending September 3, 21 Canadian Fixed Income (Long Term) th Percentile st Quartile MERCER Median rd Quartile th Percentile FTSE TMX Canada Long Term Number of Funds Total Market Value (CAD billion) Canadian Fixed Income (Short Term) th Percentile st Quartile MERCER Median rd Quartile th Percentile FTSE TMX Canada Short Term Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 1

17 Period Ending September 3, 21 Canadian Fixed Income (Core Plus Universe) th Percentile st Quartile MERCER Median rd Quartile th Percentile FTSE TMX Canada Universe Number of Funds Total Market Value (CAD billion) US Equity th Percentile st Quartile MERCER Median rd Quartile th Percentile S&P CAD Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 16

18 Period Ending September 3, 21 International Equity th Percentile st Quartile MERCER Median rd Quartile th Percentile MSCI EAFE CAD Number of Funds Total Market Value (CAD billion) Global Equity th Percentile st Quartile MERCER Median rd Quartile th Percentile MSCI World CAD Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 17

19 Period Ending September 3, 21 Total Equity th Percentile st Quartile MERCER Median rd Quartile th Percentile S&P/TSX Composite Number of Funds Total Market Value (CAD billion) Canadian Small/SMID Cap Equity th Percentile st Quartile MERCER Median rd Quartile th Percentile S&P/TSX SmallCap Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 18

20 Period Ending September 3, 21 Emerging Markets th Percentile st Quartile MERCER Median rd Quartile th Percentile MSCI EM CAD Number of Funds Total Market Value (CAD billion) Global Fixed Income th Percentile st Quartile MERCER Median rd Quartile th Percentile Citigroup WBIG CAD Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 19

21 Period Ending September 3, 21 Money Market th Percentile st Quartile MERCER Median rd Quartile th Percentile FTSE TMX Canada 91 Day T-Bill Number of Funds Total Market Value (CAD billion) Total time weighted rates of returns (%) (TWRR) are shown in this summary. Annualised rates of returns are shown for periods greater than one year. 2

22 MERCER PENSION HEALTH INDEX The Mercer Pension Health Index monitors the directional impact of the capital markets on the financial position of Canadian pension plans, not just pension funds. The Index represents the ratio of assets to liabilities for a model pension plan - the higher the ratio, the healthier the plan. The ratio has been arbitrarily set to 1% at the beginning of the period. The assets of the model plan are assumed to be invested in the passive balanced portfolio, while the liabilities are determined using the assumptions required for solvency valuations, which are based on the yield on long-term Government of Canada bonds. The Index also assumes deficit funding payments are made to fund deficits over five years. The starting point and the magnitude of the changes for any pension plan will depend on a range of factors: asset mix and the impact of active management, plan demographics and plan design. But the Index should help answer questions like: Why does my actuary say bad news when my bond manager says good news? Assets: Passive Portfolio (see page 3). Liabilities: % active members, % retired members. 6% of benefits for active members assumed to be settled through commuted values based on the Canadian Institute of Actuaries transfer value standards without the one-month lag, and the remaining 4 % assumed to be settled through an annuity purchase. Benefits for retired members assumed to be settled through an annuity purchase. Annuity prices determined based on the CIA guidance for the medium duration illustrative block. Results will vary by pension plan. 13% 12% 11% 1% 9% 8% 7% 6% % RATIO OF ASSETS TO LIABLITIES Sep 1 93% Although the information contained in this survey has been obtained from a source which Mercer Investment Consulting believes to be reliable, we do not guarantee its accuracy. You are invited to quote from this Survey with proper acknowledgement of the source. An expanded version of this survey including asset mix and investment management fee universes as well as each investment manager s returns is also available. For further information on a full range of investment consulting services please call one of our offices: CALGARY TORONTO MONTRÉAL Dave Makarchuk Mathieu Tanguay Diane Alalouf Mercer is a leading global provider of investment consulting services, and offers customized guidance at every stage of the investment decision, risk management and investment monitoring process. We have been dedicated to meeting the needs of clients for more than 3 years, and we work with the fiduciaries of pension funds, foundations, endowments and other investors in some 3 countries. We assist with every aspect of institutional investing (and retail portfolios in some geographies), from strategy, structure and implementation to ongoing portfolio management. We create value through our commitment to thought leadership; world-class, independent research; and top-notch consultants with local expertise. 21

23 Important notices 21 Mercer LLC. All rights reserved This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without Mercer s written permission. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages), for any error, omission or inaccuracy in the data supplied by any third party. This does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products. Universe notes Mercer manager universes are constructed using data and information provided to Mercer either directly or via third party providers. The universes are intended to provide collective samples of strategies that best allow for robust peer group comparisons to be conducted over a chosen timeframe. Mercer does not assert that the peer groups are wholly representative of and applicable to all strategies available to individual investors. Universe distributions are calculated based on the data that was in our database at the time that the universe was constructed, and may therefore change over time due to additional information supplied by an investment manager or revisions to data. Opinions not guarantees The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. Not investment advice This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Information obtained from third parties Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential, or incidental damages), for any error, omission or inaccuracy in the data supplied by any third party. Risk warnings The value of stocks and shares, including unit trusts, can go down as well as up and you may not get back the amount you have invested. The value of bonds and other fixed income investments including unit trusts can go down as well as up and you may not get back the amount you have invested. Investments denominated in a foreign currency will fluctuate with the value of the currency. The value of investments in real property can go down as well as up, and you may not get back the amount you have invested. Valuation is generally a matter of a valuer s opinion, rather than fact. It may be difficult or impossible to realise an investment because the property concerned may not be readily saleable. Certain investments, such as illiquid, leveraged or high-yield instruments or funds and securities issued by small capitalization and emerging market issuers, carry additional risks that should be considered before choosing an investment manager or making an investment decision. 22

24 For further information, please contact your local Mercer office or visit our website at: CALGARY 222-3rd Avenue SW, Suite 12 Calgary, Alberta T2P B4 Tel: HALIFAX 181 Hollis Street, Suite 13 Halifax, Nova Scotia B3J 3N4 Tel: MONTRÉAL 1981 McGill College Avenue, Suite 8 Montréal, Québec H3A 3T QUÉBEC 294 Laurier Blvd., Suite 69 Québec, Québec G1V 4T2 Tel: TORONTO 12 Bremner Blvd, Suite 8 Toronto, Ontario MJ A8 Tel: VANCOUVER Burrard Street, Suite 9 Vancouver, British Columbia V6C 3S8 Tel: MERCER (CANADA) LIMITED