Pension portfolios lean on TSX surge as long bonds and U.S. dollar moves curb gains
Canadian pension plans rode a powerful domestic equity rally in 2025, even as long bonds and global markets dragged on overall results.
RBC Investor Services (RBCIS) reported that Canadian defined benefit pension plans under its administration delivered a median return of 7.9 percent for 2025, with just 0.6 percent in Q4, down from 11.3 percent and 1.6 percent respectively in 2024.
The year’s outcome reflected a sharp divide between surging Canadian equities and softer fixed income and global equity performance.
Canadian equities in client plans did the heavy lifting.
They returned 31.1 percent for the year and 6.1 percent in Q4, compared with 21.2 percent and 3.2 percent in 2024, closely tracking the TSX Composite Index’s 31.7 percent annual gain and 6.3 percent quarterly rise.
According to RBCIS, the TSX had its best year since 2009, with gains heavily concentrated in Materials, up 100.6 percent annually versus 21.4 percent in 2024, and Financials, up 35.3 percent versus 30.1 percent a year earlier.
Isabelle Tremblay, director, Client Solutions and Asset Owner Segment Lead at RBCIS, 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,” a shift that “highlights the importance of strategic rebalancing in a fragmenting global market” amid last year’s US‑centric rally and this year’s currency‑driven opportunities.
Global equities contributed but lost momentum versus the prior year.
Client plans’ global equity holdings returned 16.7 percent in 2025 and 1.4 percent in Q4, down from 24.1 percent and 4.1 percent in 2024.
The MSCI World Index returned 15.4 percent for the year and 1.6 percent in Q4, compared with 29.4 percent and 6.3 percent in 2024, as US equities weighed on performance.
The S&P 500 Index returned 12.4 percent annually and 1.1 percent in Q4.
In contrast, the MSCI Emerging Markets Index gained 27.3 percent for the year and outpaced the MSCI World Index for the first time since 2020, reflecting what RBCIS described as attractive valuations and resilient growth in Asia.
Tremblay added that “geopolitical tensions and US Federal Reserve uncertainty boosted safe-haven demand,” while emerging markets showed “remarkable resilience” that helped shape pension plans’ strategic choices.
Currency moves also shaped outcomes.
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 prior year’s currency-driven volatility.
Fixed income remained a drag relative to the benchmark.
RBCIS said fixed income for its client plans returned -0.6 percent in Q4 and 1.4 percent for the year, lagging the FTSE Canada Universe Bond Index, which posted -0.3 percent in Q4 and 2.6 percent annually.
The shortfall reflected heavier allocations to long-term bonds, which fell 1.4 percent in Q4 and 0.7 percent for the year, reversing 2024’s 1.3 percent gain.
Shorter-term bonds returned 0.3 percent in Q4, while mid-term bonds were the strongest performers over 2025 at 4.0 percent.
