Fund Investing

Energy-laden Canadian equity funds remain near the bottom of the performance rankings.
By Christian Charest | 02/02/18

The performance of mutual funds in Canada in January saw a continuation of many trends that dominated 2017, with China-led foreign equity funds topping the rankings and energy-laden Canadian equity funds lagging. Twenty-four of the 44 Morningstar Canada Fund Indices, which measure the aggregate returns of funds in various standard categories, increased during the month. Nine of them gained more than 2%, while 18 of the 20 losing indices decreased by 1.6% or less, according to preliminary performance data released today by Morningstar Canada.

About the Author
Christian Charest is the editor responsible for Web sites at Morningstar Canada. He has been in the investment industry since 1995, having previously worked for Laurentian Bank and Merrill Lynch Canada. He holds a BBA in finance from the École des Hautes Études Commerciales in Montreal.

The best performer among the 44 fund indices was the one that tracks the Greater China Equity category, which followed up its chart-topping 35.9% gain in 2017 with an 8.7% gain in January. While currency effects detracted from returns during the month, stock markets in Hong Kong, Shanghai and Taiwan posted solid gains of 9.9%, 5.3% and 4.3%, respectively.

The fund indices that track the Asia Pacific ex-Japan Equity and Asia Pacific Equity categories, which were among the top performers in 2017, also continued their winning streak in January, increasing 3.5% and 3.3%, respectively. While China was the main driver of returns, other markets including South Korea and Japan also contributed positively. The strength of Asian stocks also helped funds in the Emerging Markets Equity category, which collectively increased 5.0%.

In the United States, the S&P 500 Index posted a total return of 5.7%, but the U.S. dollar depreciated by 2% against its Canadian counterpart, resulting in an gain of 3.6% for the Morningstar U.S. Equity Fund Index. This was the third-best result among the 44 Morningstar Canada Fund Indices in January.

Among other fund indices that track sector-diversified fund categories, Global Equity increased 2.7%, while International Equity and European Equity were up 2.2% and 2.1%, respectively.

Domestic equity funds were among the worst-performing equity categories for the month, as the energy sector continued to impede the Canadian market. The Morningstar Canadian Equity Fund Index had the worst result among all diversified equity categories with a 1.4% decrease, matching the total return of the S&P/TSX Composite Index. The Canadian Dividend & Income Equity and Canadian Small/Mid Cap Equity fund indices were also in the red with decreases of 1.3% and 1.1%, respectively, while the fund indices that track the Canadian Focused Small/Mid Cap Equity and Canadian Focused Equity categories -- whose constituent funds can hold up to half their assets in non-Canadian stocks -- had positive results with 1.8% and 0.3%, respectively.

The worst-performing fund indices were the ones that track the Precious Metals Equity and the Energy Equity fund categories, decreasing 2.6% and 2.7%, respectively. Three other sector-specific fund indices in negative territory for the month were Global Infrastructure Equity, Natural Resources Equity and Real Estate Equity, down 1.6%, 0.7% and 0.7%, respectively. The only sector-fund category to post an increase was Financial Services Equity, up 2.5%.

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.

Fund Indices1 month
Greater China Equity 8.7
Emerging Markets Equity 5.0
U.S. Equity 3.6
Asia Pacific ex-Japan Equity 3.5
Asia Pacific Equity 3.3
Global Equity 2.7
Financial Services Equity 2.5
International Equity 2.2
European Equity 2.1
Cdn Focused Small/Mid Cap Equity 1.8
Preferred Share Fixed Income 1.7
2035 Target Date Portfolio 1.2
U.S. Small/Mid Cap Equity 1.2
Global Equity Balanced 1.1
North American Equity 0.8
Global Small/Mid Cap Equity 0.7
2030 Target Date Portfolio 0.4
Floating Rate Loans 0.4
Global Neutral Balanced 0.4
Short-Term Target Date 0.3
Canadian Focused Equity 0.3
2025 Target Date Portfolio 0.2
Canadian Money Market 0.0
U.S. Money Market 0.0
Global Fixed Income Balanced -0.1
Tactical Balanced -0.1
High Yield Fixed Income -0.1
Canadian Fixed Income Balanced -0.2
Canadian Short Term Fixed Income -0.2
Canadian Neutral Balanced -0.2
Global Fixed Income -0.5
Cdn Inflation-Protected Fixed Income -0.6
Canadian Equity Balanced -0.6
Real Estate Equity -0.7
2035+ Target Date Portfolio -0.7
Natural Resources Equity -0.7
Canadian Fixed Income -0.8
Canadian Small/Mid Cap Equity -1.1
Canadian Dividend & Income Equity -1.3
Canadian Equity -1.4
Canadian Long Term Fixed Income -1.5
Global Infrastructure Equity -1.6
Precious Metals Equity -2.6
Energy Equity -2.7
Data as of Jan. 31, 2018

 

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