Rising Commodity Prices Boost Small-Cap Funds in November, Morningstar Canada
Data Show

TORONTO, Dec. 2 /CNW/ - Investment funds in Canada that focus on domestic or U.S. small-cap equities offered a solid performance in November, as rising commodity prices boosted companies in that space. However, that same factor sparked inflationary fears among bond investors, leading to losses for funds in the fixed-income categories. Meanwhile, concerns about the bailout of banks in Ireland coupled with the decline of major European currencies led to some steep losses for European equity funds.

The best performers among the 44 Morningstar Canada Fund Indices in November were those that track the Precious Metals Equity and Natural Resources Equity categories, which posted gains of 8.5% and 7.5%, respectively, according to preliminary performance data released today by Morningstar Canada. Next came three indices that measure the performance of North American small-cap funds, many of which have significant exposure to resources: Canadian Focused Small/Mid Cap Equity (4.6%), Canadian Small/Mid Cap Equity (4.2%), and U.S. Small/Mid Cap Equity (3.4%).

"Concerns about the U.S. government's asset purchases and Europe's downbeat economic situation pushed up the price of gold, which is viewed as an alternative to paper currencies," said Esko Mickels, fund analyst for Morningstar Canada. "Silver followed suit, aided by upgraded price forecasts, and its historic relationship to gold. Foreign investors continued to show interest in Canadian resource companies such as Potash One, which benefited from friendly takeover advances from Germany's K+S AG."

All six fund indices that track fixed-income categories were in the red last month. Leading the decline among domestic categories were longer-dated bonds, which were impacted by the acceleration in inflation. "The latest figures for the Consumer Price Index announced on Nov. 23 showed an increase from 1.9% in September to 2.4% in October, driven by higher gasoline prices," Mickels said. The Morningstar Canadian Long Term Fixed Income Fund Index lost 1.5% for the month.

The worst performer last month was the Morningstar European Equity Fund Index with a loss of 8%. Stock markets in Europe were mostly negative, but the biggest blow for Canadian investors resulted from currency movements, as the euro and British pound lost 5.5% and 2%, respectively, against the Canadian dollar. "Continued concerns with the finances of Greece, Portugal, Spain, Italy and Ireland, along with increasing worry over France, have some economists wondering whether the eurozone will continue to survive in its current form. Stronger countries such as Germany have a limited willingness to assist weaker countries, which are suffering from lacklustre competitiveness but are unable to devalue their currencies as long as they remain in the union. These concerns sent the euro down sharply against world currencies," Mickels said.

Europe's woes also had an impact on the broadly diversified International Equity category, whose fund index lost 3.9% for the month. The loss in that category was tempered by the strong showing of Japan, another major component; Japanese equities, as measured by the Nikkei 225 Index, rose 8% in local currency terms. Meanwhile, Global Equity funds were further buoyed by U.S. equities, which were flat for the month, leading to a 1.4% loss for the Morningstar Global Equity Fund Index.

For more on November fund performance, go to www.morningstar.ca.

Morningstar Canada's preliminary fund performance figures are based on change in funds' net asset values per share during the month, and do not necessarily include end-of-month income distributions. Final performance figures will be published on www.morningstar.ca next week.

About Morningstar
Morningstar Research Inc. is a Canadian subsidiary of Chicago-based Morningstar, Inc., a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 370,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 26 countries.

For further information:

Esko Mickels, Fund Analyst, Morningstar Canada, [phone]; Christian Charest, Editor, Morningstar Canada, [phone]