Canadian inflation-protected securities known as real-return bonds are reaping gains for one of the country’s largest pension funds during a turbulent period for fixed-income markets.

Healthcare of Ontario Pension Plan (Hoopp) became an “aggressive” buyer of the inflation-linked bonds when interest rates started climbing in 2022, Chief Investment Officer Michael Wissell said in an interview. By December, the notes represented roughly half of the fund’s target portfolio allocation to bonds, he said. 

“Right now, one of the most compelling things is real-return bonds,” Wissell said. “This is the ‘Get out of Jail Free Card’ here. These notes, which were for years at minus 100 basis points — even more negative in some jurisdictions — are now offering a real rate of return.”

Canada stopped issuing the bonds in 2022, making them harder to buy in larger quantities.

Hoopp said Wednesday that it posted a 9.4 per cent return last year, booking gains in fixed income, stocks, private equity and private credit. The Toronto-based pension fund — which serves about 460,000 active, deferred and retired health-care workers in Canada’s most populous province — increased exposure to bonds after yields rose in the summer and into the fall, helping net assets grow to $112.6 billion.

“We used the volatility in the fixed-income market, which, by all accounts, was pretty substantial, to continue to add real-return bonds, which are more difficult to accumulate,” Wissell said. “It is very unlikely that you will see us selling them anytime soon.”

The returns for Hoopp’s asset categories are as follows:

• Fund’s fixed-income portfolio advanced 4.3 per cent
• Public equities jumped 15.7 per cent
• Credit grew 4.6 per cent
• Private equity climbed 15.9 per cent
• Private credit gained 9.3 per cent
• Infrastructure advanced 8.2 per cent
• Real estate investments lost 6.5 per cent

“The dispersion that exists within real estate assets is hard to understand,” Wissell said. “We’re diversified across segments, and I’m not sure that I’m smart enough to know which of those segments are going to be the winners going forward because we’re seeing big price adjustments across these different sectors.”