Canadian pension plans had positive returns in the third quarter of 2025, buoyed by equity markets, according to the Northern Trust Canada Universe. The median Canadian Pension Plan returned 3.6% for the quarter and 4.3% year-to-date for the period ending September 30, 2025.
The third quarter unfolded amid persistent inflation, softening labour markets, and evolving central bank policy. In Canada, the employment backdrop weakened, a reflection of the pressures on the Canadian economy. The Bank of Canada (BoC) maintained its benchmark rate for most of the quarter before pivoting to a rate cut in September, resulting from rising fears of an economic slowdown and lower concerns of inflation driven by retaliatory tariffs, as most were removed by the Federal government. This aligned with the U.S. Federal Reserve's (Fed) decision to cut interest rates based on similar views of economic indicators.
Trade uncertainty and geopolitical tensions continued to add further complexity to the investment environment on a global basis, with tariff activity and diplomatic friction contributing to market volatility. Despite the tenuous conditions, equity markets shrugged off these macro concerns and delivered solid returns for the quarter. Fixed income markets experienced pockets of volatility, driven by fiscal health concerns and inflation expectations, but ultimately finished in positive territory, offering investors a welcome source of diversification and stability.
"Resilience and strength continue to dominate the Canadian pension landscape despite persistent inflation, softening labour markets, and shifting trade policies. Canadian pension plans showed their adaptability and the effectiveness of their diversified investment strategies as they navigated the complex and uncertain macroeconomic environment we experienced in the quarter," said Northern Trust Canada President and CEO Jeff Alexander.
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.
Equity markets remained resilient throughout the quarter, navigating a period of macroeconomic uncertainty with notable strength. Corporate fundamentals, particularly among U.S. companies, continued to support solid earnings results. Bond markets experienced intermittent volatility driven by fiscal concerns and persistent inflation but ultimately edged higher for the period. Meanwhile, gold rallied to record highs, supported by central bank demand and investor demand for safe-haven assets.
- Canadian Equities, as measured by the S&P/TSX Composite Index, advanced 12.5% in CAD for the quarter. The materials sector far outpaced all sectors, supported by a rally in gold and silver. The information technology, energy and financial sectors witnessed solid returns while the industrials sector was the only decliner for the period.
- U.S. Equities, as measured by the S&P 500 Index rose 10.3% in CAD for the quarter. The information technology, communications services and consumer discretionary sectors led performance with double digit returns. Meanwhile the consumer staples sector was the weakest performer witnessing a modest decline over the quarter.
- International developed markets, as measured by the MSCI EAFE Index, gained 6.9% in CAD for the quarter. All sectors posted positive performance, with the financials sector generating the strongest performance posting an attractive double-digit return. The consumer staples sector witnessed the weakest performance during the period.
- The MSCI Emerging Markets Index surged 13.1% in CAD for the quarter. All sectors rose with the materials, consumer discretionary and communication services leading the index, while the energy sector lagged all other segments.
Canadian equity markets advanced higher in the third quarter, despite some of the headwinds that surfaced. Economic activity showed signs of strain as manufacturing data pointed to signals of continued contraction amid trade pressures and weak export demand. Inflation edged higher moving above the BoC's 2% midpoint of the 1-3% control range. Unemployment remained elevated at 7.1%, its highest level since August 2021, as joblessness rose, highlighting persistent labour market challenges. The BoC lowered its key interest rate in September by 25 basis points to 2.50%, marking its first cut since March, in an effort to stimulate a weakened economy.
The U.S. market remained resilient throughout the period despite an uncertain macroeconomic picture. Inflation accelerated to 2.9% in August, its highest reading since January. The Fed lowered its key interest rate range by 0.25 bps to 4.00% - 4.25%, marking its first cut since December 2024. The decision reflects growing concern over a slowing labour market and heightened uncertainty around the economic outlook. Labour data reinforced the Fed's caution as the August Nonfarm payrolls were below expectations, while unemployment finished the quarter at 4.3%, its highest in over two years.
International equities posted solid gains for the quarter as steady policy and resilient inflation trends supported international markets. Major central banks chose to hold interest rates steady, while maintaining a cautious stance. The European Central Bank (ECB) held rates with the deposit rate at 2% for the third straight month, signaling a data-driven approach as inflation hovers near its 2% target. Similarly, the Bank of England (BoE) kept rates at 4% following an interest rate cut in August and slowed quantitative easing, noting inflation is expected to return to target but warranting caution on cuts. In Asia, the Bank of Japan (BoJ) maintained its short term policy rate target around 0.5%, citing external headwinds, while announcing plans to very gradually unwind ETF and REIT holdings.
Emerging markets delivered strong results for the quarter, as policy stability across major emerging market economies supported sentiment despite lingering global uncertainties. The People's Bank of China (PBoC) kept its one-year and five-year loan prime rates unchanged at 3.0% and 3.5% respectively, adopting a "wait and see" approach amid easing trade tensions and steady exports. Similarly, the Central Bank of Brazil maintained its Selic rate at 15% to guide inflation toward target, while the Reserve Bank of India held rates at 5.5%, focusing on assessing prior cuts amid moderating inflation and positive growth prospects.
The FTSE Canada Universe Bond Index advanced 1.5% in CAD during the quarter. From a duration perspective, mid-term bonds outperformed both short and long-term bonds. Corporate bonds outpaced both Provincial bonds and Federal bonds.
About Northern Trust
Northern Trust Corporation (NASDAQ:NTRS) is a leading provider of wealth management, asset servicing, asset management and banking services 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 September 30, 2025, Northern Trust had assets under custody/administration of US$18.2 trillion, and assets under management of US$1.8 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.
Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/terms-and-conditions.
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