Fund Investing

With three consecutive months in the red, Canadian equity funds are among the worst performers.
By Christian Charest | 03/04/18

Following a month of February that saw severe losses across the board, world stock markets put up tame but still mostly negative results in March. Meanwhile, the Canadian dollar depreciated significantly against most world currencies, dampening the shock for Canadian holders of foreign equity funds.

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.

As a result, 19 of the 44 Morningstar Canada Fund Indices, which measure the aggregate returns of funds in various standard categories, had positive returns in the first quarter of 2018, including eight indices that increased by 1% or more, according to preliminary performance data released today by Morningstar Canada.

The best performer among the fund indices was the one that tracks the Greater China Equity category, with a 4.1% gain. The fund index had an exceptional month in January, gaining 8.7%, but was in the red for the two subsequent months, losing 2.5% in February and 1.7% in March. Fund returns in that category were heavily influenced by currency effects, with the Canadian dollar depreciating 6% against the Chinese renminbi and 2.3% against the Hong Kong dollar over the quarter.

Other fund indices that focus on stocks in the Asia/Pacific region also performed well in the first quarter, including Asia Pacific Equity and Asia Pacific ex-Japan Equity, which were both up 2.7%, as well as Emerging Markets Equity, which gained 3.7%.

European equity funds also benefited from favourable currency movements, with the loonie depreciating 5.1% against the euro and 6.3% against the UK pound. This was enough to counter the negative performance of European stock markets, which saw the UK's FTSE 100, Germany's DAX Index and France's CAC 40 drop 8.4%, 6.4% and 2.7%, respectively, over the quarter. As a result, the Morningstar European Equity Fund Index remained in positive territory with a 0.2% gain for the three-month period.

In the United States, the S&P 500 Index saw its strong gains from January erased by steep declines in February and March and ended the quarter down 0.8%. For Canadian fund investors, however, that market performance combined with the loonie's 2.7% decline against the U.S. dollar translated into an average gain of 1.1% for funds in the U.S. Equity category.

In Canada, the S&P/TSX Composite Index started the year with three months of negative performance, resulting in a 4.4% loss for the Morningstar Canadian Equity Fund Index over the quarter. While the energy sector rebounded in March, the three largest sectors in the Canadian market -- financial services, materials and energy -- suffered steep losses in February that they were unable to recuperate by the end of the quarter.

The worst-performing fund indices in the quarter were Precious Metals Equity, Natural Resources Equity and Energy Equity, which decreased 5.7%, 6.1% and 6.7%, respectively.

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 next week.


Fund IndicesMarQ1
Greater China Equity-1.74.1
Emerging Markets Equity-0.53.7
Asia Pacific Equity-0.62.7
Asia Pacific ex-Japan Equity0.72.7
Floating Rate Loans0.21.4
Cdn Inflation-Protected Fixed Income1.51.2
U.S. Small/Mid Cap Equity0.21.2
U.S. Equity-1.91.1
Global Equity-1.00.9
International Equity-0.90.4
U.S. Money Market0.10.3
Global Fixed Income0.50.3
European Equity-0.10.2
Canadian Money Market0.10.2
Real Estate Equity2.40.2
Short-Term Target Date-0.00.1
Canadian Short Term Fixed Income0.10.1
Global Small/Mid Cap Equity-0.60.1
2035 Target Date Portfolio-0.40.1
Canadian Fixed Income0.6-0.1
Canadian Long Term Fixed Income1.7-0.1
Preferred Share Fixed Income-1.0-0.2
High Yield Fixed Income-0.2-0.3
2025 Target Date Portfolio-0.1-0.3
Global Fixed Income Balanced0.0-0.4
Global Equity Balanced-0.6-0.4
Global Neutral Balanced-0.3-0.6
2030 Target Date Portfolio-0.3-0.6
Canadian Fixed Income Balanced0.0-0.7
Financial Services Equity-2.0-1.5
Canadian Neutral Balanced-0.3-1.7
Cdn Focused Small/Mid Cap Equity-1.4-1.9
Tactical Balanced-0.6-2.0
2035+ Target Date Portfolio-0.5-2.1
North American Equity-1.8-2.7
Canadian Focused Equity-1.0-2.8
Global Infrastructure Equity1.4-3.3
Canadian Equity Balanced-0.7-3.4
Canadian Small/Mid Cap Equity-0.7-4.4
Canadian Equity-0.3-4.4
Canadian Dividend & Income Equity-0.6-4.8
Precious Metals Equity2.6-5.7
Natural Resources Equity-0.2-6.1
Energy Equity3.1-6.7
Data as of March 31, 2018

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