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Canada Pension Plan Investment Board CEO Mark Machin walks through the pension fund's office in Toronto on Jan. 12, 2017.

Mark Blinch/The Globe and Mail

Roaring stock markets left the Canada Pension Plan in the dust in the second quarter, as the retirement plan reported a 5.6-per-cent return – a dozen percentage points behind many major stock indexes.

The results come one quarter after the plan’s broad blend of investments – stocks, bonds, real estate, private equity and infrastructure, among many things – blunted the impact of the COVID-19 stock market meltdown in February and March and allowed it to outperform markets.

“We designed and actively execute a ‘steady Eddie’ approach through the years,” spokesman Michel Leduc said Friday. “We work hard to avoid the sharp whipsaw swings you see in March or in June.”

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The Canada Pension Plan Investment Board, the fund’s manager, evaluates its performance compared with a “reference portfolio” of global stocks and bonds that it believes represents a passive approach to investing, versus the active management it has used since 2006.

CPPIB discloses that comparison annually, not in its quarterly results. However, based on disclosures in its annual report, The Globe and Mail estimates the indexes it uses returned about 16.5 per cent in the second quarter, more than 10 percentage points better than CPPIB’s return.

In the quarter ended March 31, the reference portfolio lost 17.9 per cent, The Globe estimates, but CPPIB posted a loss of just 3.7 per cent, outperforming by more than 14 percentage points.

CPPIB uses the S&P Global LargeMidCap Index, made up of the vast majority of the public companies in developed and emerging markets, for 85 per cent of its reference portfolio. The remainder is the FTSE Canada All Government Bond Index.

Mr. Leduc says “our strategy deliberately, intentionally and methodically seeks to depart from” the reference portfolio. “Of course, the idea is to track above the index over the medium and long term, but resilience is priceless, as we showed [during the market decline].”

CPPIB closed the quarter with 31 per cent of its portfolio in stocks – Canadian and international. Bonds made up 22 per cent, while private equity and real assets made up nearly half of the portfolio. (Portfolio-mix numbers exceed 100 per cent because of the quirks of pension plan financial reporting.)

From March 31 to June 30, the S&P/TSX Composite Index returned slightly less than 16 per cent, while the S&P 500 rose nearly 20 per cent.

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A strengthening loonie hurt CPPIB’s returns in the quarter, because it expresses its numbers in Canadian dollars, even though it invests primarily outside of Canada.

In raw dollars, plan assets increased $24.8-billion in the quarter, to $434.4-billion at June 30. It’s the biggest single-quarter dollar increase in assets so far, Mr. Leduc said.

CPPIB’s 10-year and five-year annualized net returns now stand at 10.7 per cent and 8.9 per cent, respectively.

The Canada Pension Plan, founded in 1966, is the primary retirement-security program for working Canadians. The government created CPPIB in 1999 to professionally manage the plan’s money. The past two decades have seen the board shift first from bonds to stocks, then to other assets such as real estate, infrastructure and private equity.

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