Volatile bond markets stung the Canada Pension Plan Investment Board in the fund's fiscal first quarter, limiting its return to just 1.1 per cent.
Annualized, the gain amounts to 4.4 per cent, less than half of what the pension fund made in 2012.
Though CPPIB has a solid exposure to public and private equities – $94-billion versus $63-billion invested in fixed-income – the rocky bond market outweighed any gains made on global stocks – particularly the scorching U.S. market. From April to June, the yield on the U.S. 10-year Treasury bond jumped to 2.52 per cent from 1.86 per cent, a sharp 66 basis point rise.
"Overall we would characterize the quarter as relatively turbulent compared to recent reporting periods. Interest rates rose significantly as bond markets fell, while volatility increased across major equity markets producing mixed returns," said Mark Wiseman, chief executive officer of CPPIB, which manages Canada's public pension fund.
CPPIB's assets jumped to $189-billion by the end of the quarter, up $5.6-billion from the end of fiscal 2012. However, most of this rise came from member contributions, while $1.9-billion was derived from net investment income.
The fund's assets are split across equities (50 per cent of the portfolio), fixed-income (34 per cent), real estate (11 per cent) and infrastructure (6 per cent).
Canada's chief actuary has affirmed that the CPPIB is sustainable for 75 years if it earns an average of 4 per cent real annual returns after inflation. The fund's 5-year annualized performance is 2.9 per cent after inflation, mostly stemming from losses during the financial crisis, but it made a yearly average of 5 per cent after inflation over the past 10 years.