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Inflation Fears Dampen Pension Plan Gains?
Barbara Shecter of the Financial Post reports, Inflation fears dampen pension plan gains:
Inflation
jitters and a stronger loonie dampened pension plan gains in the first
quarter on the back of healthy stock market returns, according to a
survey released Wednesday by RBC Dexia Investor Services.
Within
the $340-billion RBC Dexia universe, pension assets earned 2.3% in the
quarter that ended March 31, bringing 12-month results to 10.8%.“Equities
continued to do well despite the geopolitical tensions in the Middle
East and the tragic events in Japan, but have been exceedingly
volatile,” said Don McDougall, director of advisory services for RBC
Dexia.
Canadian stocks were the top
performing asset class for a third successive quarter as the S&P
TSX Composite index gained 5.6%.
The
two largest sectors, financials, which were up 9.1%, and energy, which
gained 8.7%, accounted for the bulk of the increase. However, pensions
were “generally under-exposed to both and subsequently lagged the index
by 0.3%,” said Mr. McDougall.
“Over the year, pensions are up a solid 19.0% but trail the S&P TSX benchmark by 1.4%,” he said.
Canadian
pension plans saw their bond holdings lose 0.2% for the first three
months of 2011, as price declines outpaced coupon payments for a second
successive quarter.
Digital Journal added some more details on the RBC Dexia survey:
Healthy
stock market returns helped pension plans maintain momentum in the
March quarter but inflation jitters and a stronger loonie dampened
their gains, according to a survey just released by RBC Dexia Investor
Services, which maintains the industry's most comprehensive universe of
Canadian pension plans and money managers.
Within the $340 billion
RBC Dexia universe, pension assets earned 2.3 per cent in the quarter
ending March, bringing 12-month results to 10.8 per cent. "Equities
continued to do well despite the geopolitical tensions in the Middle East and the tragic events in Japan, but have been exceedingly volatile," said Don McDougall, Director of Advisory Services for RBC Dexia.
Canadian stocks were the top performing asset class for a third
successive quarter as the S&P TSX Composite index gained 5.6 per
cent. "The two largest sectors, financials (up 9.1 per cent) and energy
(up 8.7 per cent) accounted for the bulk of the increase, but pensions
were generally under-exposed to both and subsequently lagged the index
by 0.3 per cent," noted McDougall. "Over the year, pensions are up a
solid 19.0 per cent but trail the S&P TSX benchmark by 1.4 per
cent."
Foreign equities also
contributed but currency losses on US and Japanese assets muted their
gains. In the quarter, the MSCI World index appreciated 3.6 per cent in
local currency terms but pensions only rose 2.6 per cent once
converted to Canadian dollars. Year-over-year, currencies had less
impact on performance as the loonie's strength in relation to the US
dollar was more than offset by it's weakness against the other major
currencies.
Canadian pension plans saw their bond
holdings lose 0.2 per cent for the first three months of 2011, as price
declines outpaced coupon payments for a second successive quarter.
McDougall added, "With mounting speculation over higher inflation,
weakness came from the longer end of the curve as long-term bonds
declined by 1.4 per cent versus 0.3 per cent for the DEX Universe."
You can read the full RBC Dexia release by clicking here.
Late this evening I spoke to a senior fund manager from an insurance
company and he told me 2010 was one of their best years whereas Q1 2011
isn't as strong because their bond portfolio isn't doing as well.
The
big question is inflation already a problem in Canada, forcing the Bank
of Canada to resume increasing interest rates? According to Stéfane
Marion and Yanick Desnoyers of the National Bank of Canada, the brisk rebound in March CPI will put pressure on the Bank of Canada to raise rates in July:
After
the February low core inflation rate, a brisk rebound occurred in March
with almost all of the components showing strong acceleration. As a
result, the twelve- month core CPI experienced a substantial change from
February to March (0.8 percentage points). In our opinion, the
underlying trend of inflation in Canada is closer to 1.5% rather than
the February number of approximately 1%. Core goods CPI registered its biggest March increase in more than 20 years. Despite the high flying Canadian dollar, core goods CPI is now back in positive territory on a y/y basis.
Thus, the cyclical low for core CPI is now behind us. In its last
monetary report, the BoC described Canada as an economy with "material
excess supply". In light of this morning’s inflation data this wording
appears to be too strong. The process of normalizing interest rates must resume in Canada. We think that a July rate hike is the most likely scenario.
Will
the Bank of Canada resume increasing rates? Given the rise in core
inflation, it's highly likely but remember, the Bank of Canada can't
veer too far off from the Fed, so any rise in rates will be modest and
gradual. Also, the Bank of Canada is concerned with the rise in personal
debt. And then there is the bigger problem of the Canada bubble fueled by Canada's mortgage monster.
In
other words, while inflation pressures are building, I wouldn't be
reducing my exposure or actively shorting Canadian bonds, because when
the Canada bubble bursts -- and mark my words, it will eventually burst
-- those Canadian bonds will outperform all other asset classes.
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inflation fears are dampening more than my investment drawers
bonds unbonded when bubble pierced by cleopatra's needle.
The prudent thing for a pension fund is to have at least ten percent in physical gold, don't you think? or at least a closed-end fund like PHYS that has the physical, and Leo, they store it in a vault in Canada.
It's nice to see that at least someone in Canada is acknowledging the existence of inflation...unlike some central bankers in the USSA.
Last night I paid $4.15 per gallon for gas, and this morning I saw Mishkin on CNBC say "there is no inflation". I almost threw the TV off the balcony... instead I turned off the TV, turned on some music and poured myself another espresso. I think that was a wise move.
...and dont visit zerohedge.com anymore, it makes you nuts, but can't resist it!
...and dont visit zerohedge.com anymore, it makes you nuts, but its too addictive!
I agree. All I can say is "Kill your television". Yes, I dug Ned's Atomic Dustbin. There, if I have not dated myself yet on this blog, that should do it.
Leo - you cite some earlier article you wrote on Canada's bubble and the Mortgage Monster, which I read here on ZH. But the links direct me to another web site where they were also published instead of linking to where they were published here on Zero Hedge.
http://www.zerohedge.com/article/canada%E2%80%99s-mortgage-monster
The links are to my blog! I promote my blog too! I also post on ZH.