Canadian Pension Plan investment returns advanced during the second quarter, as global equities overcame inflationary fears and continued an upward trend, according to the Northern Trust Canada Universe.

Financial markets emerged from the stresses inflicted by the global pandemic and shifted focus to the fundamental factors underpinning the economy – inflation, employment and earnings growth. The second quarter witnessed periods of surging commodity prices and elevated inflation readings which sparked a watchful eye from central banks and heightened the fear of rising interest rates. Despite clear signs of economic growth, these uncertainties cascaded brief windows of doubt across both stocks and bonds alike. However these periods of turbulence faded, allowing volatility to diminish later in the quarter, as markets recognized base effects and supply chain disruptions played a critical role in higher inflation figures.

“The second quarter of 2021 can be characterized as a period of transition, whereby global economies continued to eye reopening while charting a path to a normalized growth environment. The median Canadian Pension Plan returned 4.1% for the quarter, a reflection of positive equity markets and a healthy economic climate. The course of the pandemic has certainly taught us attributes about strength and adaptation, fundamentals we can all relate to. These key components continue to build on the foundation of Canadian pension plans today, a testament to their longevity and long term sustainability,” said Katie Pries, President and CEO of Northern Trust Canada.

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

Financial markets navigated a bumpy road as the traditional macro environment remained much of the focus this quarter. In particular, the potential for rising inflation caught the attention of central banks, creating uncertainty surrounding the timing of tapering and tightening of monetary policy. Despite volatility around inflation pressures and monetary policy, the global economy regained strength, corporate fundamentals remained strong and central banks maintained an accommodative stance. This positive economic backdrop led to healthy returns generated by both stocks and bonds for the second quarter.

• Canadian Equities, as measured by the S&P/TSX Composite Index, advanced 8.5 percent for the quarter led by strong double digit returns from the Information Technology, Energy, Real Estate and Communication Services sectors. Health Care was the weakest performer during the period. The quarter also saw the S&P/TSX Composite Index reaching new record highs for the period.

• U.S. Equities, as measured by the S&P 500 Index generated 6.9 percent in CAD for the quarter, with Real Estate, Information Technology and Energy sectors posting the strongest results. The Utilities sector experienced some weakness posting a modest contraction during the period.

• International developed markets, as measured by the MSCI EAFE Index, generated 3.8 percent in CAD for the quarter. Health Care, Consumer Staples and the Information Technology sectors were the leading sectors, while Communication Services and Utilities sectors detracted for the period.

• The Emerging Markets, as measured by the MSCI Emerging Markets Index, advanced 3.6 percent in CAD for the quarter, with the Health Care, Industrials and Energy sectors posting solid double digit returns, while the Real Estate sector remained the weakest segment within the index.

The Canadian economy continued to emerge from the effects of the lockdowns enacted during the quarter. Despite the job losses witnessed throughout April and May, the economy rebounded adding 231,000 jobs in the month of June. Although inflation numbers nudged up during the quarter, both monetary and fiscal policy continued to remain supportive throughout the period.

The U.S. economy continued to gain momentum throughout the quarter as global economies reopened and business activity gained more traction. The U.S. witnessed healthy job gains during the entire period, with the unemployment rate dropping to 5.9% in June from 6.0% in March. The Federal Reserve maintained its accommodative stance, keeping the policy rate at 0.00% - 0.25%. Monetary and Fiscal policy support combined with healthy corporate fundamentals paved the path for solid returns for the U.S. equity market. The US dollar also regained strength later in the quarter relative to other major currencies.

International markets witnessed positive returns for the quarter as monetary policy support measures remained in place. The European Central Bank (ECB) and the Bank of England (BoE) maintained their respective policy benchmark rates, with the ECB pledging continued support for its Pandemic Emergency Purchase Programme (PEPP). The Bank of Japan (BoJ) and the Reserve Bank of Australia (RBA) followed a similar path of maintaining an accommodative policy.

Emerging markets generated positive returns during the second quarter, as the People’s Bank of China (PBOC) maintained its policy rate while raising its reserve requirements ratio to 7% which commenced in mid-June. The Reserve Bank of India (RBI) continued an accommodative stance, keeping its key policy rates unchanged as the country faced another surging wave of Covid-19 cases during the quarter.

The Bank of Canada (BoC) maintained its overnight policy rate at 0.25% during the quarter, but reduced its target for weekly government debt purchases in April to $3 Billion from $4 Billion. Although the provincial lockdowns reduced economic activity throughout the period, the BoC expects a healthy rebound of the economy supported by consumer spending.

The Canadian Fixed Income market, as measured by the FTSE Universe Bond index, gained 1.7% for the quarter. The Provincial segment stood out as the strongest performing sector followed by the Corporate and Federal sectors. The yield curve witnessed some flattening during the period allowing Long term bonds to outperform both the Short and Mid-term bonds for the quarter.

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 March 31, 2021, Northern Trust had assets under custody/administration of US$14.8 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. 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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