Pension plans prove slow and steady wins the race with solid 2024 gains

The Northern Trust Canada Universe reported a 10.6 percent return for Canadian pension plans in 2024.  

In the fourth quarter, the median plan increased by 1.5 percent, reflecting continued resilience.   

Financial markets throughout the year faced ongoing economic uncertainty, geopolitical tensions, and inflation concerns. Central banks, including the US Federal Reserve, shifted towards a less restrictive monetary policy, though the Fed maintained a cautious stance late in the quarter. 

Despite some stabilization in North American economies, political instability worldwide contributed to ongoing market volatility.   

Canadian and US equity markets posted positive returns in Q4, while non-North American equities declined. The US dollar strengthened against most major currencies.  

The Canadian yield curve fluctuated significantly, and bonds ended the quarter with a flat return.  

However, market gains throughout 2024 helped stocks perform well, while bonds achieved a modest single digit return for the year.   

“This past year presented both challenges and opportunities as the macroeconomic environment pursued stability and normality,” said Katie Pries, president and CEO of Northern Trust Canada.  

She added that plan sponsors are adapting by modernizing frameworks and implementing strategies to ensure steady growth and protection of pension plan investments.   

The Northern Trust Canada Universe tracks the performance of Canadian institutional defined benefit plans that use Northern Trust’s performance measurement services.   

Despite market uncertainty, Canadian equities delivered strong results in Q4. The S&P/TSX Composite Index gained 3.8 percent in the quarter and 21.7 percent for the year.  

The Information Technology sector led both quarterly and annual performance with double-digit returns, while Communications Services was the weakest performer in both periods.   

US equities performed even stronger, with the S&P 500 Index rising 9.0 percent in CAD in Q4 and 36.4 percent for the year. Consumer Discretionary, Communications Services, Information Technology, and Financials led the gains, while Real Estate, Materials, and Health Care lagged behind.   

International developed markets declined in Q4, with the MSCI EAFE Index dropping 2.1 percent in CAD.  

However, for the full year, the index gained 13.8 percent, with Financials leading annual returns. Communications Services and Consumer Discretionary performed well in the quarter, but Materials saw the sharpest decline.  

Emerging markets also faced setbacks in Q4, with the MSCI Emerging Markets Index falling 1.9 percent in CAD.  

However, for the full year, the index advanced 17.9 percent. Financials and Information Technology gained in Q4, while most other sectors declined.   

The Canadian economy slowed in Q4. In response to weaker growth and signs of a softening labour market, the Bank of Canada (BoC) cut interest rates by 50 basis points in December, bringing the benchmark rate to 3.25 percent.  

The BoC governor stated that monetary policy no longer needed to be in “restrictive territory” since inflation was back on target. However, the bank signalled a “more gradual approach to monetary policy” for future cuts if economic conditions align with expectations.   

The US economy continued to show resilience, though inflation progress slowed. The unemployment rate dropped to 4.1 percent in December, while annual inflation rose for the third consecutive month to 2.9 percent.  

The US Federal Reserve lowered interest rates by 25 basis points in December, setting the benchmark rate at 4.25-4.50 percent. Fed officials maintained a cautious stance, emphasizing inflation concerns.  

The quarter also marked a shift in US leadership, with Donald Trump elected as the 47th president after a competitive race.   

International markets faced sluggish growth in Q4.  

The European Central Bank (ECB) cut rates twice during the quarter, bringing the deposit rate to 3.0 percent.  

The Bank of England (BoE) reduced rates in November but held the benchmark at 4.75 percent in December due to concerns over rising wages and prices.  

The Bank of Japan kept rates steady at 0.25 percent, citing uncertainty over Japanese wage growth and the economic effects of Trump’s election.   

Emerging markets saw mixed performance.  

The People’s Bank of China (PBoC) held its key lending rates in December, keeping the one-year loan prime rate at 3.1 percent and the five-year rate at 3.6 percent.  

This pause followed reductions in both October and July. In Brazil, the central bank raised the Selic rate to 12.25 percent to support inflation targets and employment stability.  

The Reserve Bank of India (RBI) maintained its benchmark rate at 6.5 percent amid slowing growth and easing inflation. 

^{Source: The Northern Trust Canada Universe} 

Canadian fixed income markets showed little movement in Q4.  

The FTSE Canada Universe Bond Index remained flat, as corporate bonds posted positive returns while federal and provincial bonds declined. Short-term bonds advanced slightly, while mid- and long-term bonds fell.