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August Pension Newsletter

By August 9, 2022August 11th, 2022Announcements
April Benefits Newsletter

The August Pension Newsletter includes:

2022 Q2 Investment Commentary

ELCIC Pension Plan

ELCIC Pension Plan Investment Return

Jan 1 to Jun 30, 2022

Median Balanced Pension Plan as a comparison

Jan 1 to Jun 30, 2022

Excess return
-14.6 -12.6 -2.0

 

The returns in both equity and bond portfolios have been disappointing so far this year. With the current economic and political crisis, rising interest rates and high inflation we experience an unusual combination where the bond performance suffers from higher interest rates and the equity performance from reduced growth prospects. But there is a good chance of improvement going forward as our investment advisor at PH&N had to say:

“It’s certainly been a challenging start to 2022 in financial markets, with both bonds and equities posting negative performance. Generally, in risk off periods, bonds will perform ok given their safety characteristics. However, this time around with the inflationary backdrop where it is, central banks have been raising the overnight level of interest rates quite aggressively to combat inflation; their actions are entirely necessary. The result of these actions has been weak return for bonds so far this year. Equity markets have been falling on slowing growth concerns, negative economic shocks, and the likelihood of a recession in the not too distant future. There will be relief when inflation eventually rolls over, central banks achieve their hiking objectives (end of 2022), and corporate earnings become more clear and resume growth. The positive news is that bonds are now yielding the highest level of interest since before the Financial crisis of 2008/2009 which provides an attractive level of income. Lastly, we expect volatility in equity markets to lessen in the second half of 2022 and are constructive that most of the adjustment and selloff has been endured.” 

Growth Fund
PH&N Canadian Equity Value Fund
PH&N Canadian Equity Investment Return

Jan 1 to Jun 30, 2022

S&P/TSX Capped as a comparison

Jan 1 to Jun 30, 2022

Excess return
-5.9% -9.9% +4.0%

Canadian equities saw better outcomes this past six months than other global markets. The investment manager did one better and outperformed the Canadian equity benchmark by 4%. They attribute this to their positioning and stock selection in the Info Tech and Energy sectors.

RBC Global Equity Focus Pension Trust
RBC Global Equity Investment Return

Jan 1 to Jun 30, 2022

MSCI World ($CAD) as a comparison

Jan 1 to Jun 30, 2022

Excess return
-23.6% -18.6% -5.0

This portfolio outperformed the benchmark in the second quarter but has not yet caught up from the underperformance of the first quarter. Recall that the investment manager admitted that the underperformance was mainly due to stock selection with their most highly rated stocks performing the worst and vice versa. They made some changes to better withstand environments with the dynamics of the first quarter that appear to be working.

Baillie Gifford Global Equity Fund
Baillie Gifford Global Equity Investment Return

Jan 1 to Jun 30, 2022

MSCI World ($CAD) as a comparison

Jan 1 to Jun 30, 2022

Excess return
-29.1 -18.6% -10.5

The first half of this year has been a challenging one for stock markets and this period has extended a run of underperformance for the Global Alpha strategy stretching back to early 2021. Share price weakness has been most acute for high-growth companies, where uncertainty about future rewards is highest, with profits and cash flow weighted to future years. These types of companies are a significant part of Global Alpha portfolios and run by ambitious management teams prepared to take a long-term view. As such they have been in the eye of the storm, with these attributes having been markedly out of sync with the stability and defensiveness craved by the market. The manager believes that the portfolio is well-equipped to navigate the coming months and years whatever emerges from the current uncertainty. This portfolio has resilience embedded within it and is delivering the growth we expect. Resilience means not just surviving, but emerging stronger.

Fixed Income

PH&N Core Plus Bond Fund
PH&N Core Plus Bond Fund Investment Return

Jan 1 to Jun 30, 2022

FTSE Canada Universe Bond as a comparison

Jan 1 to Jun 30, 2022

Excess return
-12.3% -12.2% -0.1

The response by the Canadian government to the rising inflation has been to increase the interest rates. This has an affect on the return in the bond portfolio as existing bonds were priced on interest rates at that time. When the rates rise quickly as has occurred this year, the bond returns fall behind causing the result in the chart above.

PH&N Mortgage Pension Trust
PH&N Mortgage Pension Trust Investment Return

Jan 1 to Jun 30, 2022

FTSE CanadaShort-term Bond

as a comparison

Jan 1 to Jun 30, 2022

Excess return
-5.6% -4.4% -1.2

This portfolio of first rank mortgages is also affected by inflation. As the manager repositions for this current environment, their core focus remains on capital preservation and a disciplined approach to underwriting with an emphasis on quality property and underwriting.

PH&N High Yield Mortgage Fund
PH&N High Yield Mortgage Investment Return

Jan 1 to Jun 30, 2022

FTSE CanadaShort-term Bond

as a comparison

Jan 1 to Jun 30, 2022

Excess return
1.9% -4.4% +6.3

This fund has continued to perform well for the Pension Plan. The manager looks for stability and quality. They believe their positioning has made this an attractive risk / reward portfolio.

 

*Please note that information is not intended to be investment advice or to be a recommendation for your personal investment portfolio.

Have a question for GSI?

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GSI Website:  elcicgsi.ca
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