Canada's institutional investors optimistic despite market turmoil

Canadian pension plans and other institutional investors minding your money are confident they’ll meet return expectations in the next five years, but it won’t be smooth sailing on the markets, a new report shows.

A global survey from Pyramis Global Advisors says 96 per cent of Canadian institutional investors believe they’ll hit their targets by the end of the decade. That’s higher than 84-per-cent confidence level in the U.S. and 91 per cent globally.

Expectations are also up across the board compared to 2012, when 60 per cent of Canadian investors expected to meet medium-term targets, 71 per cent in the U.S. and 65 per cent around the world.

“What you are seeing here both in Canada and globally is renewed confidence in the markets which comes from living through the 2008 crisis and realizing that if you stuck with your basic strategy – your long-term strategic mix – that at the end of the day you were able to meet your returns,” says Derek Young, president of Fidelity’s Global Asset Allocation division and vice chairman of Pyramis Global Advisors.

The Canadian investors, surveyed before the market swings earlier this month, also believe there will be a number of boom-bust cycles along the way, particularly compared to their global counterparts.

About 60 per cent of Canadian institutional investors expect more ups and downs. In the U.S. 42 per cent of investors said they expect more market volatility. The numbers then drop to five per cent in Asia and four per cent in Europe.

Another 30 per cent of Canadians believe volatility will remain the same, while only 10 per cent see less frequent market gyrations.

“A real confidence has return to Canadian plans, but they still have an eye on volatility,” says Young, who is based in the U.S. He believes Canadian plan managers have a more global perspective and “more of a realism” when it comes to market cycles.

That could be because of Canada’s cyclical natural resource sectors, including oil and gas, mining and forestry, which have both disappointed and delighted investors for generations.

The survey was done in the summer and includes 811 investors in 22 countries representing $9 trillion (U.S.) in assets. That includes 191 U.S. corporate pension plans, 71 U.S. government pension plans, 48 non-profits and other U.S. institutions, 90 Canadian pension plans, 283 European and 128 Asian institutions including pensions, insurance companies and financial institutions.

Investors were asked about portfolio risk, investment objectives and which regions offer the best growth prospects.

Among Canadian investors surveyed, 39 per cent said North America was the best place to put money in the next three-to-five years, 27 per cent said emerging Asian countries, 15 per cent cited developed Asia, such as Japan, while Europe and Latin America rounded out the rest of the results.

Risk management was a top concern among Canadian investors surveyed, or 33 per cent. That’s up from 11 per cent in 2012.

The survey also shows Canadian investors weren’t that comfortable with the downside of the investments they oversee. When asked if they full understood the risks in their portfolios, 49 per cent said “somewhat,” 39 per cent said “yes” and 12 per cent said “no,” according to the results.

Asked about their portfolio’s primary objective, 34 per cent of Canadians said preserving the fund’s status, 32 per cent said growing the fund’s status, 14 per cent said capital growth and 18 per cent said capital preservation.