Domestic equities power returns while currency shifts and duration bets test risk strategy
Canadian pension plans just booked a blockbuster year in domestic stocks while fixed income and global equities lagged behind.
RBC Investor Services (RBCIS) reported that Canadian Defined Benefit pension plans under its administration delivered a median return of 7.9 percent in 2025, with 0.6 percent in Q4.
That trailed 2024, when plans posted a 1.6 percent median return in Q4 and 11.3 percent for the full year.
Isabelle Tremblay, director, Client Solutions, and Asset Owner Segment Lead at RBCIS, said plans relied on home-market strength in a volatile environment.
Tremblay said Canadian pension plans “navigated a year of stark contrasts in 2025, leveraging domestic equity strength amid global volatility.”
She noted that “while 2024’s gains were fueled by US equities and the Information Technology sector, 2025 saw a decisive shift toward Canadian Materials and Financials,” highlighting “the importance of strategic rebalancing in a fragmenting global market” amid last year’s US‑centric rally and this year’s currency‑driven opportunities.
Canadian equities did the heavy lifting.
Client plans’ Canadian equity holdings returned 6.1 percent in Q4 2025, compared with 3.2 percent in Q4 2024, and 31.1 percent for the full year, versus 21.2 percent in 2024.
Performance closely tracked the TSX Composite Index, which gained 6.3 percent for the quarter and 31.7 percent annually.
The TSX posted its best year since 2009, led by the Materials sector, which surged 100.6 percent annually, versus 21.4 percent in 2024, and Financials, up 35.3 percent, compared with 30.1 percent in 2024.
These two sectors dominated 2025 gains, in contrast to the more evenly distributed growth in 2024.
Global equities contributed, but with reduced momentum compared with the previous year.
Client plans’ global equity holdings returned 1.4 percent in Q4, versus 4.1 percent in Q4 2024, and 16.7 percent for the year, down from 24.1 percent in 2024.
The MSCI World Index returned 1.6 percent in Q4, compared with 6.3 percent in Q4 2024, and 15.4 percent annually, versus 29.4 percent in 2024, pressured by US equities, which underperformed other developed markets.
The S&P 500 Index delivered 1.1 percent in Q4 and 12.4 percent for the year.
In contrast, the MSCI Emerging Markets Index returned 27.3 percent annually and outpaced the MSCI World Index for the first time since 2020, reflecting attractive valuations and resilient growth in Asia.
“Geopolitical tensions and US Federal Reserve uncertainty boosted safe-haven demand, while emerging markets demonstrated remarkable resilience, further shaping the strategic choices of pension plans,” Tremblay added.
Currency moves reshaped returns across regions.
The Canadian dollar strengthened by 4.7 percent against the US dollar in 2025, reversing its 2024 depreciation and dampening returns on unhedged US equity positions.
At the same time, the loonie weakened against the euro, which amplified gains from unhedged European exposures and echoed the currency-driven volatility seen the prior year.
Fixed income detracted relative to the benchmark and highlighted duration risk.
Fixed income holdings for RBCIS client plans returned -0.6 percent in Q4 and 1.4 percent for the year, underperforming the FTSE Canada Universe Bond Index, which posted -0.3 percent in Q4 and 2.6 percent annually.
RBCIS attributed the gap to client portfolios’ heavier allocation to long-term bonds, which fell 1.4 percent in Q4 and 0.7 percent over the year, reversing 2024’s gains of 1.3 percent.
Shorter-term bonds returned 0.3 percent in Q4, while mid-term bonds were the best-performing segment for the year, returning 4.0 percent.
