Northern Trust Pension Universe Data: Canadian Pension Plans Generated Positive Q1 Returns in Turbulent Markets

Canadian pension plans showed strength and resilience amidst a tumultuous backdrop during the first quarter of 2025, with the median pension plan rising 1.5% for the three-month period, according to the Northern Trust Canada Universe.

Financial markets were roiled in Q1 by heightened macro uncertainty and elevated levels of volatility, primarily driven by tariff directives announced by the U.S. administration. Although macro-economic data, a key barometer for monetary policy, remained relatively healthy, trade tensions cast a wave of trepidation across markets. Some major central banks chose to cut interest rates as progress on inflation continued, while the U.S. Federal Reserve (Fed) maintained its level of interest rates and exercised a cautious view.

Despite the level of fear created by escalating tariff action, non-U.S. equities generally produced overall positive returns. Meanwhile, the U.S. stock market experienced a correction during the quarter which ended in negative performance. Bonds behaved protectively in nature, generating positive results for the quarter, while gold surged to a record high in mid-March. The Canadian dollar experienced significant swings yet closed the quarter at a level near where it began the period.

"Fear and uncertainty cascaded across financial and currency markets during the first quarter, dampening the sentiment of market participants across the globe. As investors look for clarity and markets seek out a path to certainty and stability, pension plan sponsors remained sound and committed to protecting plan assets while weathering this volatile period," said Katie Pries, CEO 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.

Volatility remained in place throughout the first quarter, testing investor sentiment. Tariff turbulence rippled across markets, but global equities generally moved higher for the quarter, except for U.S. stocks which experienced a sharp decline. Bonds navigated well through the market swings, concluding the quarter with healthy positive returns.

• Canadian Equities, as measured by the S&P/TSX Composite Index, rose 1.5% for the quarter. The Materials sector stood out as the best performer, driven by the rise in precious metals prices. The Health Care sector concluded the period with the weakest performance within the index.
• U.S. Equities, as measured by the S&P 500 Index, returned -4.2% in CAD for the quarter, representing its worst drop since the second quarter of 2022. The Consumer Discretionary and Information Technology sectors were hardest hit, while Energy and Health Care sectors witnessed solid performance.
• International developed markets, as measured by the MSCI EAFE Index, advanced 7.1% in CAD for the quarter. The Energy and Financials sectors were the leading positive performers for the quarter, while the Consumer Discretionary and Information Technology sectors were the only two sectors generating negative returns for the period.
• The MSCI Emerging Markets Index gained 3.1% in CAD for the quarter. The Communications Services and Consumer Discretionary sectors posted solid double-digit returns, while the Information Technology sector was the sole decliner, posting the weakest performance for the period.

The Canadian economy entered the quarter on reasonably solid footing with inflation close to the 2% target and healthy GDP growth at the end of last year. Despite a bump in inflation in February to 2.6%, following the mid-month end of the temporary federal tax break, the inflation figure for March witnessed a drop to 2.3%. The economy reported a reduction of 33,000 jobs in March, the largest decline since January 2022 and saw the unemployment rate rise to 6.7% from 6.6% in February. The Bank of Canada (BoC) implemented two 25 basis point rate cuts during the quarter, bringing the key policy rate to 2.75%. The BoC is of the opinion that trade tensions and tariffs imposed by the United States are likely to slow the pace of economic activity and increase inflation and said that it would "proceed carefully" with further rate changes given the need to assess upward pressures from higher costs and downward pressures from weaker demand.

The U.S. economy saw signs of progress during the quarter on inflation data. Inflation figures continued to show signs of cooling, finishing the month of March at 2.4%, down from 2.8% the prior month. Despite the solid increases in non-farm payrolls, the unemployment rate saw a slight uptick in March to 4.2%. The Fed unanimously voted to hold rates steady at both meetings held during the quarter, keeping the benchmark rate range at 4.25-4.50%. Chair Jerome Powell stated that they would maintain or ease policy depending on the state of the economy, inflation, and the strength of the labor market.

International markets posted solid returns for the quarter. The historic pivot in German fiscal policy was a major boost for Europe, in particular with aerospace and defence companies up 30%-plus (in CAD) for the quarter. The European Central Bank (ECB) made two 25 basis point rate cuts during the period bringing its key deposit facility rate to 2.5%. The ECB noted at its March meeting that policy was becoming "less restrictive" – a shift in tone compared to the Bank's January language. The Bank of England (BoE) cut interest rates by 25 basis points in February, bringing the key policy rate to 4.5%, and chose to maintain this rate at its March meeting. The Bank of Japan (BoJ) chose to hold rates steady at 0.5% following a third rate hike in January.

Emerging markets observed positive returns for the first quarter. At its March meeting, the People's Bank of China (PBoC), held its one-year loan prime rate (LPR) and its five-year LPR steady for the fifth consecutive month. The PBoC stated that it would make cuts at the appropriate time to reverse the sluggish economy. The Central Bank of Brazil raised its key Selic rate by 100 basis points to 14.25% in March.

The Canadian Fixed Income market, as measured by the FTSE Canada Universe Bond Index, advanced 2.0% for the quarter. Federal bonds outpaced Provincial and Corporate bonds while mid-term bonds outperformed both short and long-term bonds over the period.

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 March 31, 2025, Northern Trust had assets under custody/administration of US$16.9 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.

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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