Canadian Economic Growth Remains Fragile

DB and DC plan sponsors look to improve portfolio efficiency 
TORONTO, Jan. 16, 2014 /CNW/ - According to the Annual Survey of Economic 
Expectations by global professional services firm Towers Watson (NYSE, NASDAQ: 
TW), Canada's top economists, strategists, and portfolio managers predict 
modest growth for both Canada and the United States, with Canada lagging the 
U.S. in both economic activity and job creation over the next few years. 
Global growth is expected to improve but remain relatively subdued, leading to 
continued low interest rates in most countries for at least another year, 
according to the survey. In addition, it shows that despite rising long-term 
interest rates, economic activity in Canada remains fragile and reliant on 
improvement in the United States and Europe and continuing strength in China. 
In the near term, survey respondents expect Canadian GDP growth to remain 
around 2%, rising to 2.4% over the longer term. While the recent decline in 
the Canadian dollar may provide some welcome relief to exporters, however, the 
majority of survey respondents expect the Canadian dollar to appreciate to 
close to par over the long term. 
Janet Rabovsky, Director of Investment Consulting at Towers Watson's Toronto 
office said: "With a lower Canadian dollar, there is hope that manufacturing 
businesses, and certainly the export sector of the economy, can contribute to 
reducing the unemployment rate in the next few years. That being said, recent 
announcements about industrial plant closures in Ontario would indicate that 
the cycle has not yet turned." 
With inflation in check and the lower Canadian dollar, the Bank of Canada 
signalled a neutral stance on interest rates in 2013. Survey respondents 
expect the Bank of Canada's overnight rate to increase from its current level 
of 1% to 2% in 2015 - 0.50% lower than last year's forecast. While respondents 
expect short-term rates to remain relatively low over the next few years, they 
expect the ten-year government of Canada bond to rise to 3.8% by 2018. 
"The increase in longer-term interest rates in 2013 provided welcome relief 
for DB pension plan sponsors whose funded positions benefited from this and 
strong capital market returns during the year," said Rabovsky. "According to 
our data, the average solvency funded ratio for a typical Canadian pension 
plan reached 100% by December 31, 2013." 
Survey respondents are not overly bullish about equity market returns over any 
time period. The majority expect the S&P / TSX Composite Index to return 
between 6% and 10% over the short, mid and long term. The most surprising 
forecast is for emerging market equities, which the majority of survey 
respondents expect to return below 5% in 2014 and between 6% and 10% over the 
medium and longer term. 
Improved Portfolio Efficiency
The increasing correlation between different equity markets, coupled with the 
forecast for lower returns, have DB pension plan sponsors seeking other ways 
to diversify their investment portfolio, according to Towers Watson.  This 
suggests that while many continue to look to alternative asset categories for 
diversification, there is renewed focus on more efficient and cost-effective 
implementation strategies, such as smart beta, which involves accessing 
markets in a more intelligent way through non-price indices, low-volatility 
equities or thematic investing. Towers Watson's clients have already allocated 
US$20 billion of assets to smart beta strategies globally. 
"These strategies have been around for more than 10 years and are now really 
getting some serious attention from pension funds given the expected 
low-return environment and desire to only pay for manager skill or alpha where 
it truly exists," explained Rabovsky. "Over the past few years, investment 
characteristics that had once thought to be alpha have been identified and 
segregated and can now be quasi indexed or systematized." 
According to Michelle Loder, Towers Watson's Canadian Defined Contribution 
Business Leader, smart beta strategies are not just for DB plans. They are 
increasingly being added to DC record keeper platforms, either as part of a 
portfolio solution or as a standalone option. "As benefit adequacy issues come 
into focus, the trend to institutionalize DC investment structures will 
continue," adds Loder. "In line with this, we will see more smart beta 
strategies in DC portfolios, such as listed infrastructure and REITs, as 
sponsors look to more sophisticated diversified solutions to target 
risk-adjusted return expectations and focus members on achieving retirement 
income goals." 
About the Survey
Towers Watson's Annual Survey of Economic Expectations provides forecasts from 
leading business economists, strategists and portfolio managers from more than 
128 organizations.  The results have been compiled to give a consensus opinion 
on Canada's economic and market prospects over the short (2014), medium 
(2015-2018) and long terms (2019-2028). 
Towers Watson Investment
Towers Watson Investment is focused on creating financial value for the 
world's leading institutional investors through its expertise in risk 
assessment, strategic asset allocation, fiduciary management and investment 
manager selection. Towers Watson's Investment business has over 750 associates 
worldwide, assets under advisory of over US$2 trillion and around US$60bn of 
assets under management. 
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services 
company that helps organizations improve performance through effective people, 
risk and financial management. The company offers consulting, technology and 
solutions in the areas of benefits, talent management, rewards, and risk and 
capital management.  Towers Watson has more than 14,000 associates around the 
world and is located on the web at www.towerswatson.com.
 

SOURCE  Towers Watson 
 Media Contact: David Le Roy 416-960-7558 David.leroy@towerswatson.com 
Allison McLeod 416-960-2725 Allison.mcleod@towerswatson.com 
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CO: Towers Watson
ST: Quebec
NI: INS ECO ECOSURV  
-0- Jan/16/2014 13:00 GMT