The next big investing trend is “low risk”

You know what they say on Bay Street: If you can’t meet expectations, just lower ’em. 

Driving the news: The Canada Pension Plan Investment Board (CPPIB), which invests money on behalf of Canadians who contribute to the Canada Pension Plan (CPP), reported an 8% annual return last year, but still fell nearly 12 percentage points short of its benchmark. 

  • Returns were fuelled by investments in public and private stocks, which offset losses in its real estate portfolio (remember when it sold an NYC office tower for a dollar?). 

Big picture: The CPPIB has been trailing its benchmark, made up of 85% global stocks and 15% Canadian bonds, by 0.3% over 10 years. But after last year’s miss, it’s rethinking how to measure success — which is to say, no longer comparing itself against a few U.S.-based tech stocks. 

  • Starting this fiscal year, it will use “internal benchmarks” to track investments, which is a vague descriptor but will partly serve to shift rewards away from risk-taking.  

Why it matters: As investors brace for a tougher business climate in the coming years, ditching the benchmark is a sign that the CPPIB is steering away from volatile investments, like real estate, and putting more money into passive investments, like index funds.—MR