Weak Economy Benefits Precious Metals and Fixed-Income Funds, Morningstar
Data Show
TORONTO, Sept. 2 /CNW/ - Following an encouraging rally in July, equity funds in Canada posted mixed results in August as investors pondered the effects of weak economic indicators. Those same factors also led to an exceptional month for funds that focus on fixed-income securities, according to preliminary performance data released today by Morningstar Canada.
"Investors appeared to turn their attention back to broader macro issues toward the end of the month once individual companies had announced their earnings," said Nick Dedes, fund analyst for Morningstar Canada. "Second-quarter economic growth cooled to levels well below the Bank of Canada's 3% annualized forecast. And U.S. data has offered little encouragement, with weak housing figures and private-sector job cuts."
Eleven of the 24 Morningstar Canada Fund Indices that track equity fund categories had positive returns in August. By far the best performer was the Morningstar Precious Metals Equity Fund index with a 14.4% gain. "As a result of the economic weakness, investors embraced the relative safety of gold and silver once again, driving prices meaningfully higher. Gold producers Barrick and Goldcorp enjoyed gains in the high teens for the month," Dedes said.
Despite low yields, investors also continued to flock to the relative safety of government bonds last month, driving yields even lower and pushing bond prices up. As a result, both the Canadian Inflation-Protected Fixed Income and the Canadian Long Term Fixed Income fund indices gained 3.1% in August-their best one-month performance in more than a year. The fund indices that track the Canadian Fixed Income and Global Fixed Income categories also did well, each gaining 1.7%.
The worst-performing fund index in August was Financial Services Equity with a 4.7% loss. "Canadian banks released mixed third-quarter results, as generally lower trading revenues faced off against lower loan loss provisions," Dedes said. "The domestic insurers were a major drag on the sector. In particular, Manulife Financial faced a staggering 27% decline in its stock price, in a month where it reported a second-quarter loss of $2.4 billion and saw its credit rating downgraded."
Among sector-diversified equity categories, the Morningstar Canadian Equity Fund Index offered a middling performance, its 1.1% gain reflecting both the strength of the materials sector, which includes gold producers, and the weakness of financials. Meanwhile, U.S. equities had a disappointing month with the S&P 500 Index losing 4.5%, but a weakening Canadian dollar relative to its U.S. counterpart limited the damage, and the Morningstar U.S. Equity Fund Index posted a loss of 2.4% for the month.
Asian equity funds generally did well, with the Asia Pacific Equity and Asia Pacific ex-Japan Equity fund indices gaining 2.6% and 2.4%, respectively, due in large part to currency effects that outweighed market losses. This was not the case in Japan, where a strong yen put pressure on the Nikkei 225 Index. "The Nikkei lost 7.5% in August because of concerns that the currency's strength will hurt exports, despite the Bank of Japan's attempts to stem further appreciation," Dedes said. The Morningstar Japanese Equity Fund Index lost 2.8% for the month.
For more on August 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, (416) 484-7823; Christian Charest, Editor, Morningstar Canada, (416) 484-7817
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