Northern Trust Pension Universe Data: Canadian Pension Plans Weathered Volatility in Q4 2024, Concluding the Quarter and Year With Positive Returns

Northern Trust Pension Universe Data: Canadian Pension Plans Weathered Volatility in Q4 2024, Concluding the Quarter and Year With Positive Returns

Europe, Middle East, Africa & Asia-Pacific:
Camilla Greene
+44 (0) 20 7982 2176
Camilla_Greene@ntrs.com

Simon Ansell
+ 44 (0) 20 7982 1016
Simon_Ansell@ntrs.com

US & Canada:
John O’Connell
+1 312 444 2388
John_O’Connell@ntrs.com

Canadian pension plans remained resilient in the face of volatility in the fourth quarter of 2024, with the median plan advancing 1.5% for the quarter and generating a solid double-digit return of 10.6% for the full year, according to the Northern Trust Canada Universe.

Financial market performance in Q4 was marked by themes prevalent throughout 2024, including economic growth, geopolitical tensions, inflation, and monetary policy. As most central banks continued down a less restrictive path with interest rate cuts, markets shifted focus toward monetary policy guidance and tone, in particular the cautious stance from the U.S. Federal Reserve (Fed) late in the quarter. Despite the North American economic backdrop showing signs of stabilization, waves of political uncertainty around the globe re-ignited volatility across most major markets.

Canadian and U.S. equity markets stood out with positive returns for the quarter, while non-North American equities declined during the period. The appreciation of the U.S. dollar relative to most major currencies was notable. The Canadian yield curve witnessed strong moves in both directions with bonds producing an overall flat return for the quarter. Pockets of positive returns throughout 2024 allowed for solid performance across stocks and a healthy single digit return for bonds for the full year.

“This past year presented both challenges and opportunities as the macroeconomic environment pursued stability and normality. Whether the economic tone is one of caution or optimism, plan sponsors are adapting well as they continue to modernize frameworks and implement strategies to secure consistent growth and protection of their respective pension plan investments both now and into the future,” said Katie Pries, President and CEO of Northern Trust Canada.

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

Despite a wave of political frictions that surfaced during Q4, coupled with the significant up and down moves in the yield curve, the Canadian bond market concluded the quarter with a flat return. Equity markets saw mixed results, with Canadian and U.S. stocks generating attractive returns, while outside of North America major equity markets declined during the period. The U.S. dollar emerged in solid form with significant appreciation relative to most major currencies.

Canadian Equities, as measured by the S&P/TSX Composite Index, advanced 3.8% for the quarter and 21.7% for the year. The Information Technology sector led performance for the quarter and full year, generating healthy double-digit returns over both periods. The Communications Services sector was the weakest performer for both the quarter and the year.
U.S. Equities, as measured by the S&P 500 Index generated a 9.0% gain in CAD for the quarter and a solid 36.4% in CAD for the year. Consumer Discretionary, Communications Services, Information Technology and Financials sectors produced the largest gains for the quarter and the year. Real Estate, Materials and Health Care sectors recorded the weakest returns for the same periods.
International developed markets, as measured by the MSCI EAFE Index, declined -2.1% in CAD for the quarter and returned 13.8% in CAD for the year. Communications services, Financials, and Consumer Discretionary sectors were positive performers for the quarter, while the Materials sector experienced the largest decline for the period. Financials sector led performance for the year, while the Materials and Energy sectors posted the weakest performance.
The MSCI Emerging Markets Index fell -1.9% in CAD for the quarter and advanced 17.9% in CAD for the year. Most sectors declined during the quarter with the exception of Financials and Information Technology sectors generating positive results. The full year witnessed positive results across most sectors, except for the Materials and Consumer Staples sectors which declined over the period.

The Canadian economy exhibited signs of slowing over the fourth quarter. In response to weaker economic growth and signs of a softening labour market, the Bank of Canada (BoC) continued with interest rate cuts in December. The BoC cut the benchmark interest rate by 50 basis points to 3.25% at its December meeting. The BoC governor noted that monetary policy no longer needed to be in “restrictive territory,” given that inflation was back to target. Notwithstanding this, the December decision highlighted a shift in the bank’s tone with respect to future cuts with the bank anticipating a “more gradual approach to monetary policy if the economy evolves broadly as expected.”

The U.S. economy has remained resilient despite a slowing pace of progress on inflation data. The unemployment rate dropped to 4.1% in December from the previous month. Annual inflation rose for the third consecutive month to 2.9% in December. The Federal Reserve (Fed) cut the benchmark interest rate by 25 basis points at its December meeting to 4.25-4.50%. At the same time, the central bank signaled a more cautious and balanced approach going forward, highlighting their concern for inflation. The U.S. will be embarking on a change in government, as Donald Trump was elected the 47^th President of the United States following an eventful race.

International markets witnessed a decline over the quarter with the Eurozone facing sluggish growth throughout the period. The European Central Bank (ECB) opted to cut interest rates twice during the quarter, by a quarter point each time, to bring the deposit rate to 3.0%. The Bank of England (BoE) cut in November, but chose to maintain its benchmark rate at 4.75% in December in response to concerns over increased wages and prices. The Bank of Japan also decided to hold rates steady at 0.25% citing uncertainties surrounding Japanese wage growth and the impact of newly elected Donald Trump’s policies.

Emerging markets also observed weakness during the fourth quarter. The People’s Bank of China (PBoC) held key lending rates steady at its December fixing, with the one-year loan prime rate at 3.1% and the five-year at 3.6%. This decision follows reductions in both October and July. In an effort to hit inflation targets, create stability and support employment, the Central Bank of Brazil raised its key Selic rate to 12.25%. Despite a backdrop of slower economic growth and inflation easing slightly, the Reserve Bank of India (RBI) held its benchmark rate at 6.5%.

The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index, was flat for the quarter. Corporate bonds produced positive returns while Federal and Provincial bonds fell over the period. Short-term bonds advanced modestly over the quarter, while mid- and long-term bonds witnessed a decline.

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 24 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2024, Northern Trust had assets under custody/administration of US$16.8 trillion, and assets under management of US$1.6 trillion. For more than 135 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit us on northerntrust.com. Follow us on Instagram @northerntrustcompany or Northern Trust on LinkedIn.

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