September Surge Boosts Q3 Returns for Funds in Canada, Morningstar Data Show

TORONTO, Oct 4 /CNW/ - A wave of enthusiasm on stock markets in the United States in September led the S&P 500 Index to its best performance for that month in more than seven decades. Returns were similarly strong in all other major markets last month, capping off an exceptional third quarter of 2010 in which all 44 of the Morningstar Canada Fund Indices posted gains, according to preliminary performance data released today by Morningstar Canada.

"Indications of further quantitative easing in the United States from Federal Reserve Chairman Ben Bernanke in August helped spur equity market activity," said Nick Dedes, fund analyst for Morningstar Canada. "In some cases, even the lack of downward surprises with respect to U.S. economic data has been enough to encourage investors to move into riskier assets once again, especially considering the low yields of fixed-income alternatives."

The S&P 500 Index gained 8.9% in September and 11.3% for the quarter when calculated in U.S. dollars. But because the greenback lost ground versus its Canadian counterpart during that time, the returns for Canadian-based funds holding U.S. equities were not as lofty: The Morningstar U.S. Equity Fund Index posted gains of 6.1% for the month and 7.6% for the quarter.

Half of the 24 fund indices that track equity categories had double-digit returns in the third quarter, led by the Morningstar Real Estate Equity Fund Index and its 17% gain. Equity funds that focus either on Europe or Asia did particularly well; the indices that measure the European Equity, Asia Pacific ex-Japan Equity, and Asia Pacific Equity categories posted gains of 15.4%, 14.4%, and 11.4%, respectively, for the three-month period, while Greater China Equity gained 9.3%.

Meanwhile, the Morningstar Emerging Market Equity Fund Index had the second-best performance at 15.5%, attributable in part to a massive capital injection during the quarter. "Companies in emerging markets raised US$138 billion through initial public offerings (IPOs) and additional share sales. This included a record offering from Brazil's Petrobras and a US$22.1-billion IPO from Agricultural Bank of China. Chinese manufacturing has also been expanding at a swift pace recently, giving support to the view that the country's growth is stable," Dedes said.

Among domestic equity funds, those that invest in small-capitalization stocks generally outperformed their larger-cap peers. The fund indices that track the Canadian Focused Small/Mid Cap Equity and Canadian Small/Mid Cap Equity categories gained 11% and 10.4%, respectively, compared to 9% for Canadian Equity and 8.1% for Canadian Focused Equity.

A sharp pick-up in merger and acquisition activity has been one of the positives through the quarter. "The deals indicate an improvement in confidence from larger companies that have been flush with cash for some time now and have been contemplating how best to put it to use. We saw some notable strategic acquisitions in the tech sector, the combination of UAL Corp. and Continental Airlines to form the world's largest carrier, and a handful of large-scale solicitations still in the works," Dedes said.

For more on third-quarter 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 360,000 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 21 countries.

For further information:

Nick Dedes, Fund Analyst, Morningstar Canada, [phone]; Christian Charest, Editor, Morningstar Canada, [phone]