Fund Investing

Rate hike sends domestic bond funds to the bottom of the rankings.
By Christian Charest | 02/08/18

Most sector-diversified equity funds did well in July, with the notable exception of those that focus on Asia, and particularly on China. Meanwhile, domestic bond funds had negative returns and were among the worst performers, according to preliminary performance data released today by Morningstar Canada. Thirty-four of the 47 Morningstar Canada Fund Indices, which measure the aggregate returns of funds in various standard categories, produced gains during the month, with 16 indices increasing by 1% or more.

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.

Among the fund indices that represent sector-diversified equity funds, the top performer was the Morningstar U.S. Equity Fund Index, which was up 2.5%. The S&P 500 Index had a total return of 3.7% for the month, but for Canadian investors these funds were hampered by the 1.2% depreciation of the U.S. dollar versus its Canadian counterpart.

Funds in the European Equity category also did well, with a 1.5% average gain, while the Global Equity and International Equity fund indices were up 1.5% and 1.3%, respectively. At the bottom of the table, the Morningstar Greater China Equity Fund Index lost 2.5% for the month, while the Asia Pacific Equity and Asia Pacific ex-Japan Equity fund indices were down 0.7% and 0.8%.

Despite the underperformance of Asian markets, funds in the Emerging Markets Equity category had a positive month in July with a 1.5% gain, thanks to exceptional returns in Latin America. Stock indexes covering markets in Mexico, Brazil and Argentina were up 4.3%, 8.9% and 12.5%, respectively, while currency effects also worked in these stocks' favour.

Diversified domestic equity funds had mixed results in July, with the financial services and energy sectors showing healthy gains but the materials sector posting steep losses. The S&P/TSX Composite Index produced a 1.1% total return for the month, and the fund indices that track the Canadian Equity and Canadian Focused Equity categories both gained 1.3%. The best-performing of the five domestic equity fund indices was the one that tracks the Canadian Dividend & Income Equity category, which gained 2.3% in July, while Canadian Small/Mid Cap Equity and Canadian Focused Small/Mid Cap Equity were down 0.1% and 1%, respectively.

The best and worst overall performers last month were both fund indices that track sector-specific categories. The Morningstar Financial Services Equity Fund Index gained 3.1%, while the fund index that tracks the Precious Metals Equity category lost 3.7%.

Fixed income funds struggled in July following the Bank of Canada's announcement that it would raise its benchmark rate by a quarter of a percent. The Morningstar Canadian Fixed Income Fund Index declined 0.7%, while the hardest-hit categories were Canadian Inflation-Protected Fixed Income and Canadian Long Term Fixed Income, which lost 2% and 2.4%, 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 www.morningstar.ca next week.

Fund indexes1 month
Financial Services Equity 3.1
U.S. Equity 2.5
Canadian Dividend & Income Equity 2.3
North American Equity 2.2
U.S. Small/Mid Cap Equity 1.6
European Equity 1.5
Global Equity 1.5
Emerging Mkt Fixed Income 1.5
Emerging Markets Equity 1.5
International Equity 1.3
Canadian Focused Equity 1.3
Canadian Equity 1.3
Preferred Share Fixed Income 1.2
Tactical Balanced 1.1
Canadian Equity Balanced 1.0
Global Equity Balanced 1.0
2035+ Target Date Portfolio 0.8
Canadian Neutral Balanced 0.7
2035 Target Date Portfolio 0.7
Global Neutral Balanced 0.6
Energy Equity 0.6
Real Estate Equity 0.6
2030 Target Date Portfolio 0.6
High Yield Fixed Income 0.6
Floating Rate Loans 0.5
Global Infrastructure Equity 0.3
Global Corporate Fixed Income 0.3
2025 Target Date Portfolio 0.2
Canadian Fixed Income Balanced 0.2
Global Fixed Income Balanced 0.2
Global Fixed Income 0.1
Short-Term Target Date 0.1
Canadian Money Market 0.0
U.S. Money Market 0.0
Canadian Small/Mid Cap Equity -0.1
Canadian Short Term Fixed Income -0.1
Global Small/Mid Cap Equity -0.2
Canadian Corporate Fixed Income -0.5
Canadian Fixed Income -0.7
Asia Pacific Equity -0.7
Asia Pacific ex-Japan Equity -0.8
Natural Resources Equity -1.0
Cdn Focused Small/Mid Cap Equity -1.0
Cdn Inflation-Protected Fixed Income -2.0
Canadian Long Term Fixed Income -2.4
Greater China Equity -2.5
Precious Metals Equity -3.7
Data as of July 31, 2018

 

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