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Sponsors Will Exploit Funded Status

Defined benefit plan sponsors will exploit their enhanced financial status to implement changes that will be beneficial going forward in 2014. Speaking at Mercer’s ‘2014 Fearless Forecast,’ Jaqui Parchment, leader of its Canadian investment business, predicted that “many DB plan sponsors will capitalize on last year’s excellent equity returns and diversify into other growth assets, mainly alternative asset classes. By diversifying away from a very heavy reliance on the equity risk premium for their returns, sponsors are looking for strong returns, but with lower risk,” she said. More risk-averse investors will continue the trend of dynamic de-risking, moving out of equities into bonds, especially as bond yields continue to rise and/or funded positions improve. Other key median predictions for 2014 will see Canadian fixed income returns for 2014, at 1.5% for the DEX Universe Bond Index and 0.5 % for the DEX Long Bond Index, will trail the 1.7 % anticipated rate of Canadian inflation. North American equity returns are expected to be solid at 8% for both the S&P/TSX and S&P 500 and international and emerging market equity returns are expected to be even higher at 9% for the MSCI EAFE, MSCI ACWI, and MSCI Emerging Market equity indices. Canadian real estate, global infrastructure, and diversified hedge funds are expected to deliver returns in the five to six per cent range, while private equity is expected to return 9.5%.

Courtesy of Benefits and Pensions Monitor website News Alerts

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