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Normandin Beaudry

Financial market performances in the year 2000

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There, in black and white

NB Bulletin Vol. 4 N, 1, January 2001

With the beginning of the new year¸ it is appropriate to take an in-depth look at the financial market performances regarding the assets held by pension funds. The summary below shows the return for the year 2000 of each of the major asset classes.


Summary of the returns for the year 2000


     Return Benchmark
Canadian Bonds     10.2% Scotia Capital Universe
Canadian Equities     7.4% TSE300
U.S. Equities     -5.5% S&P500 in Canadian dollars
International Equities     -10.6% EAFE in Canadian dollars

 According to an investment policy with 45% in bonds¸ 30% in Canadian equities and 25% in foreign equities¸ the benchmark portfolio would have obtained a 4.8% return for the year 2000.  


Canadian bonds is the asset class that best performed in the year 2000 with a return for the Scotia Capital Universe Bond index (SCU) of 10.2%. This excellent performance is due to the 13.0% return on long term bonds during the year 2000.

The TSE300 index of the Canadian stocks has generated a return of 7.4% for the year 2000. After the first two quarters¸ this index had already earned 21.9% which was mainly caused by Nortel Networks. However¸ the high-tech stocks sustained a correction of 15% in the fourth quarter which at the same time affected the performance of the TSE300. For a second year in a row¸ the index surpassed the S&P500 and the EAFE. The impact of Nortel Networks was still significant in 2000 as shown in the following table.


 Nortel Networks

 

 


 As at 03/31/12/2000As at 06/30/2000As at 09/30/2000As at 12/31/2000
Weight in the TSE30019.46%32.34%28.09%18.04%
Quarterly return24.86%12.80%-12.03%-46.59%
Stock price$91&.05 *$102.70$90.35$48.25

 * The price is already converted according to the stock split two for one on May 3rd¸ 2000. On this basis¸ the stock price was $72.92 on December 31st¸ 1999. The total return for Nortel in 2000 was -33.83%. 


 

The table shows the severe correction of Nortel Networks stock price during the fourth quarter. In fact¸ during this period¸ Nortel Networks lost almost 50% of its total market value to close the year at $48.25¸ far from its high of $123.10 reached on July 26th¸ 2000. 

The impact of Nortel has led to the creation of the S&P TSE300 capped index to limit the weight of a given stock at 10% in the TSE300 index. The poor performance of Nortel Networks in 2000¸ combined to its weight limitation pushed up the performance of the S&P TSE300 capped index to 19.0% for the year 2000. The benchmark portfolio of the preceding example would have obtained a return of 8.3% with the S&P TSE300 capped index compared to 4.8% in the year 2000. 

The S&P500 index has generated a return of -9.1% in U.S. dollars and -5.5% in Canadian dollars. This poor performance is due to the technology sector which had a negative return of 40%. This sector represents about 25% of the index. 

The international equities suffered in 2000 as shown by the poor performance of the EAFE index of -10.6%. This performance has been influenced by the negative returns of the stock markets in Japan (-26%) and in the United Kingdom (-11%)¸ which represent more than 40% of the market value of the EAFE index. 

Foreign content limit 

Please note that Bill C-32 adopted on June 29th¸ 2000 increases the foreign content limit to 30% of acquisition cost of pension plan assets¸ effective January 1st¸ 2001. It may be appropriate to review the investment policy of your pension plan¸ if you have not done so¸ to benefit from this modification which allows a greater diversification of assets and a higher expected return over a long term perspective. 

2000 annual review of investment managers in Quebec

Our 2000 annual review of investment managers in Quebec will take place on February 22nd¸ 2001. During this presentation¸ we will review the year 2000 with an emphasis on the performance of the financial markets and investment managers in Quebec. We will also address various factors that impact the management of pension plan assets. A formal invitation will follow shortly. 

 

Please feel free to contact us for additional information.

514.285.1122
 
630, René-Lévesque Blvd. West, 30th floor
Montreal, Quebec, H3B 1S6