Despite tariff uncertainty, plans are confident in current strategies; RBC GAM says 'not fearing tariffs is naïve'
President Donald Trump’s trade war has begun, leading to potentially significant impacts on Canadian pension funds.
But how are pension plans responding and will the 25 per cent tariffs hit pensions and institutional investors hard?
Maybe not because CAAT Pension Plan is confident in their current strategy.
“CAAT is well-positioned to weather the potential market impacts stemming from tariff implementation,” said a CAAT Pension Plan spokesperson, in a statement.
“The Plan has a robust approach to managing benefit security. With a diversified portfolio, strong Plan funding and over $5 billion set aside in reserves to protect the Plan against economic shocks, our members and employers can be confident in the resilience and sustainability of the Plan,” the Plan added.
As for OPTrust, they’re not making any rash decisions because the environment continue to evolve, said Justin Stayshyn.
“Despite challenges like tariffs, our investment teams will continue to prioritize managing risk efficiently and advancing our long-term Member-Driven Investing (MDI) strategy. This all-weather strategy is designed to navigate the volatility of changing economic environments,” said Stayshyn, senior public affairs advisor at OPTrust, in a statement.
Edwin Cass, chief investment officer of the Canada Pension Plan Investment Board said pension plans in Canada will have to diversify and position themselves as more competitive on the global stage if tariffs linger.
“One of the things we obviously should have been doing in the past and you'll see going forward is that we'll try and diversify our economy a lot more and we'll try and do some things to make it more competitive on the world stage," Cass told the Australian Financial Review Business Summit in Sydney on Tuesday, as reported by Reuters.
Meanwhile, Caisse de dépôt et placement du Québec (CDPQ), Québec’s pension plan, is taking proactive measures.
CDPQ launched a new program last month aimed at helping Québec-based companies enhance productivity and expand into new markets. The initiative is built around three key pillars: capital, expertise, and network support, offering businesses flexible financing, technological guidance, and global market access.
The capital component provides supplemental funding that complements traditional bank and financial market solutions, allowing businesses to invest in productivity-enhancing projects without taking on additional debt or diluting ownership. This financing is designed to be adaptable to each company’s specific needs, helping them maintain financial stability while pursuing growth.
In addition, CDPQ will support businesses in adopting advanced technologies such as automation, AI, and digitalization through a partnership with Vooban, a Québec-based AI firm, where CDPQ is a shareholder.
“We must take the current context as a call to action and use it to mobilize like never before,” said Charles Emond, president and CEO of CDPQ in a release. “It’s time to leverage all the know-how of our companies to drive Québec forward. CDPQ will be there to finance productivity-boosting projects and help companies diversify their markets.”
Tariffs could impact investment decisions
According to RBC Global Asset Management’s Andrzej Skiba, head of BlueBay US fixed income, “not fearing tariffs is naïve.”
“This is just the beginning of an extended process where you have a combination of emergency tariffs but also universal tariffs coming down the line,” he explained. “With emergency tariffs, the prize for good behaviour from Canada and Mexico is 10 per cent tariffs rather than 0 per cent.”
“If you have a majority of trade partners with 10 per cent-plus tariffs, this will be inflationary where the Fed will not be able to cut interest rates this year,” Skiba added.
Should tariffs remain in effect for an extended period of time, exports to the US could drop substantially, explained BeiChen Lin, senior investment strategist and head of Canadian strategy at Russell Investments.
“The Canadian economy faces a significant risk of tipping into recession later this year,” he said in a statement. “Macroeconomic uncertainty remains elevated. Although the US tariffs have now been imposed on Canada, it is possible that the tariffs could be reduced or removed as part of a deal later this year.”
When that deal takes places or what will need to happen to strike a deal remains unclear but Lin acknowledged that investors might still be holding out hope for a speedy resolution, noting that the benchmark S&P/TSX Composite Index fell only 1.5 per cent on Monday.
Meanwhile, the Canadian dollar still remains above the February 2025 low as of early Tuesday morning.
While institutional investors could potentially see a return to outsized 50 basis point (bps) rate cuts later in the year should the Canadian economy slow meaningfully, added Lin, the “BoC might need to take interest rates substantially lower than what’s priced and could leverage outsized rate cuts to get to the destination sooner.”
Despite tariff concerns, Skiba underscored investors aren’t adjusting their portfolios.
“This means there’s still vulnerability in the markets where people will find out if Trump is serious about tariffs and if that will have real implications for Fed policy this year,” he said.
“This will create volatility, and we remain of the view that this volatility is not lethal but in fact an opportunity for reengagement in fixed income at better entry points.”
So, what’s the bottom line for institutional investors? Stay disciplined, emphasized Lin.
“Amid all the uncertainty, we think Canadian investors should continue to stay disciplined and stick close to their strategic asset allocations,” said Lin. “We do not yet see signs of unsustainable extremes in Canadian equities and Canadian fixed income investments.”
