Fund Investing

Currency effects provided some relief in an otherwise dreary year for fund holders.
By Christian Charest | 05/01/16

The continued drop in the price of oil, on which Canada's economy is largely dependent, may have led to some disappointing returns for holders of Canadian equity funds in 2015, but it also caused a sharp depreciation of the Canadian dollar against virtually all major world currencies, which in turn boosted the returns 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.

According to preliminary data released today by Morningstar Canada, 29 of the 42 Morningstar Canada Fund Indices, which measure the aggregate returns of funds in various standard categories, were up for the year. The top-performer was the fund index that tracks the European Equity category, which was up 19%. The nine top-performing fund indices were all in foreign equity categories, including Global Small/Mid Cap Equity, International Equity, Asia Pacific Equity, and Global Equity, which were up 18.8%, 13.8%, 12.4%, and 11.9%, respectively.

Market results measured in local currency were mixed in Europe, with France's CAC40 Index and Germany's DAX Index increasing 8.5% and 9.6%, respectively, while London's FTSE 100 Index was down 4.9%. However, the loonie dropped 6.6% versus the euro and 11.5% against the British pound, which benefited Canadian fund investors who had exposure to European equities.

Market performance was similarly mixed in Asia, where increases of more than 9% for the Shanghai Composite Index and Japan's Nikkei 225 contrasted with losses of 7.2% and 10.4% for stock indexes in Hong Kong and Taiwan, respectively. But the loonie's double-digit depreciation against the Chinese yuan, Hong Kong dollar, and Japanese yen boosted returns for Canadians holding Asian equities in their funds.

U.S. stocks were relatively flat in 2015, with the S&P 500 Index increasing just 1.4% for the year. But after factoring in the loonie's 16.2% depreciation against the U.S. dollar, funds in the U.S. Equity and U.S. Small/Mid Cap Equity categories produced healthy results, as the fund indices of both categories increased 13%. The performance of individual funds within these and all other foreign equity categories will vary greatly depending on each fund's currency hedging policy. Funds that hedge their currency exposure will have significantly underperformed those that do not over the past year.

Without the benefit of favourable currency effects, domestic equity funds were among the worst performers last year, with all five domestic equity fund indices posting negative results. Among that group, the best performer with a 0.7% loss was the fund index that tracks the Canadian Focused Equity category, whose constituent funds can invest up to half of their holdings in foreign stocks. The worst performer was the Canadian Equity fund index, down 6.2%. The energy and basic materials sectors were the main detractors from performance for Canadian equity funds over the past year, as both sectors declined more than 20%.

Not surprisingly, funds that specifically target natural resources were the worst performers overall in 2015. In a year that saw a persistent decline in the price of oil and other commodities, funds in the Natural Resources Equity and Energy Equity categories lost 21.8% and 24.6%, 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 IndicesDec2015
European Equity1.219.0
Global Small/Mid Cap Equity2.718.8
International Equity0.713.8
U.S. Small/Mid Cap Equity-0.413.0
U.S. Equity0.813.0
Asia Pacific ex-Japan Equity2.313.0
Asia Pacific Equity2.712.4
Global Equity0.811.9
Greater China Equity2.310.7
Global Equity Balanced0.05.7
Global Neutral Balanced0.24.5
2025 Target Date Portfolio1.03.9
Canadian Long Term Fixed Income2.13.4
Global Fixed Income-0.53.3
2020 Target Date Portfolio0.62.9
Global Fixed Income Balanced0.42.8
Real Estate Equity-0.92.3
2025+ Target Date Portfolio0.82.0
Canadian Fixed Income0.81.9
North American Equity-1.21.8
2015 Target Date Portfolio0.31.7
Canadian Short Term Fixed Income0.41.6
Canadian Fixed Income Balanced-0.01.5
Cdn Inflation-Protected Fixed Income1.31.3
Tactical Balanced-0.60.4
Canadian Money Market0.00.3
Canadian Neutral Balanced-0.80.2
U.S. Money Market0.00.1
Canadian Synthetic Money Market0.00.1
Canadian Focused Equity-1.9-0.7
Cdn Focused Small/Mid Cap Equity-1.5-1.2
High Yield Fixed Income-1.6-1.3
Emerging Markets Equity0.7-1.7
Financial Services Equity-2.9-1.8
Canadian Equity Balanced-2.2-3.2
Canadian Small/Mid Cap Equity-1.9-6.0
Canadian Dividend & Income Equity-3.1-6.2
Canadian Equity-3.2-6.2
Precious Metals Equity3.5-7.7
Preferred Share Fixed Income2.0-15.2
Natural Resources Equity-5.4-21.8
Energy Equity-8.5-24.6
Data as of Dec. 31, 2015

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