Fund Investing

But the rising loonie wiped out gains for most foreign equity funds.
By Christian Charest | 02/05/18

Most fund categories in Canada posted flat returns in April, with the notable exception of those in the Energy Equity category, according to preliminary performance data released today by Morningstar Canada. Twenty-three of the 47 Morningstar Canada Fund Indices, which measure the aggregate returns of funds in various standard categories, posted gains during the month, though most of the winners were up by less than 1%.

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 Morningstar Energy Equity Fund Index was the top performer among the 47 Morningstar Canada Fund Indices for the second straight month, following up its 3.1% gain in March with a 10.6% surge in April. Funds in this category have been greatly helped by a resurgence in the price of crude oil, which went from a low near US$60 in early March to nearly US$69 by the end of April. The Morningstar Natural Resources Equity Fund Index, whose constituent funds also hold large stakes in energy stocks, was the second-best performer in April with a 6% gain.

After starting 2018 with three consecutive months in the red, diversified Canadian equity funds produced positive results in April, helped by their large allocation to the energy sector. But while the S&P/TSX Capped Energy sub-index was up 12.3% for the month, the other two large sectors of the Canadian economy -- financial services and materials -- were both up less than 1%. As a result, the S&P/TSX Composite Index produced a more muted 1.8% total return in April. The best-performing domestic equity fund index was the one that tracks the Canadian Small/Mid Cap Equity category, which gained 1.9% in April, followed by Canadian Equity, Canadian Focused Small/Mid Cap Equity and Canadian Focused Equity, up 1.6%, 1.4% and 1.1%, respectively.

The Morningstar European Equity Fund Index was the third best with a 2.1% increase. Stocks in Europe produced strong results last month, with market indexes in France, Germany and the United Kingdom all gaining between 4% and 7%. However, the oil price recovery has translated into an appreciation of the Canadian dollar against many world currencies, including gains of 2.3% and 2.6% against the euro and the pound, respectively, which tempered the stock market gains for Canadians.

In the United States, the S&P 500 Index had a total return of 0.4% in April, but for Canadian investors this modest gain was offset by the Canadian dollar's 0.5% appreciation against its U.S. counterpart, leading to a loss of 0.1% for the fund index that tracks the U.S. Equity category. The U.S. Small/Mid Cap Equity fund index was down 0.3%, while the Global Equity fund index, whose constituent funds on average hold more than half their assets in U.S. stocks, was up 0.1% for the month.

The worst-performing equity fund category was Emerging Markets Equity with a 2% loss. Much of the decline was due to currency effects, as stock markets in Latin America and most of Asia had positive results. Other equity fund indices in the red include Asia Pacific ex-Japan Equity, Asia Pacific Equity and Greater China Equity, down 1.8%, 0.8% and 0.7%, respectively.

April saw the implementation of three new fixed-income fund categories into Morningstar's fund performance evaluation methodology, as well as a redefining of existing fixed-income categories, as prescribed by the Canadian Investment Funds Standards Committee. In their initial month of assessment, the new fund indices tracking the Canadian Corporate Fixed Income and Global Corporate Fixed Income categories both decreased 0.6%, while the Emerging Markets Fixed Income fund index was down 2.3%.

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
Energy Equity 10.6
Natural Resources Equity 6.0
European Equity 2.1
Canadian Small/Mid Cap Equity 1.9
Canadian Equity 1.6
Cdn Focused Small/Mid Cap Equity 1.4
International Equity 1.4
Canadian Focused Equity 1.1
Global Infrastructure Equity 1.1
Canadian Dividend & Income Equity 0.9
Canadian Equity Balanced 0.6
Floating Rate Loans 0.5
Real Estate Equity 0.5
Global Small/Mid Cap Equity 0.4
Precious Metals Equity 0.3
Financial Services Equity 0.2
High Yield Fixed Income 0.2
Global Equity Balanced 0.1
Tactical Balanced 0.1
U.S. Money Market 0.1
Global Equity 0.1
Canadian Neutral Balanced 0.1
Canadian Money Market 0.0
Canadian Short Term Fixed Income -0.1
Global Neutral Balanced -0.1
U.S. Equity -0.1
2035 Target Date Portfolio -0.2
2030 Target Date Portfolio -0.2
Short-Term Target Date -0.2
U.S. Small/Mid Cap Equity -0.3
Canadian Fixed Income Balanced -0.3
2025 Target Date Portfolio -0.4
Global Fixed Income Balanced -0.4
North American Equity -0.4
Preferred Share Fixed Income -0.5
Canadian Corporate Fixed Income -0.6
Global Corporate Fixed Income -0.6
Greater China Equity -0.7
Global Fixed Income -0.7
Asia Pacific Equity -0.8
Canadian Fixed Income -0.9
Cdn Inflation-Protected Fixed Income -0.9
2035+ Target Date Portfolio -1.0
Asia Pacific ex-Japan Equity -1.8
Emerging Markets Equity -2.0
Emerging Mkt Fixed Income -2.3
Canadian Long Term Fixed Income -3.1
Data as of April 30, 2018

 

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