Fund Investing

Chinese woes hurt global markets; Canadian equity funds fare better than most.
By Christian Charest | 02/02/16

For the first time since August of last year, domestic equity funds posted better monthly returns than most foreign equity fund categories in January. Unfortunately, it happened during a month where most of the 42 Morningstar Canada Fund Indices, which measure the aggregate returns of funds in various standard categories, were in the red. Only seven of the 42 fund indices -- including just one equity fund index -- posted gains during the month, while 18 indices lost 2% or more, 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 month's top-performing fund index, and the only one representing an equity category to post an increase in January, was the one that tracks the Precious Metals Equity category, which gained 5.4%. The other 20 equity fund categories were all in the red.

The best-performing domestic equity fund category in January was Canadian Dividend & Income Equity with a 0.8% decrease. The fund index that tracks the more broadly based Canadian Equity category was down 1.4%, reflecting the 1.2% decline of the S&P/TSX Composite Index for the month. The worst-performing domestic equity fund indices were Canadian Focused Small/Mid Cap Equity and Canadian Small/Mid Cap Equity, which were down 4.1% and 4.4%, respectively.

The Morningstar U.S. Equity Fund Index lost 4.5%, ranking fifth from the bottom. Once again currency effects worked in favour of Canadian investors who hold unhedged U.S.-dollar investments, as the Canadian dollar depreciated by 1.7% against the greenback. This mitigated the 5% drop suffered by the S&P 500 Index when measured in U.S. dollars. Also among the worst performers was the Morningstar U.S. Small/Mid Cap Equity Fund Index with a 4.4% decrease.

Exposure to China hugely detracted from performance among foreign equity funds, as the Shanghai Composite Index and Hong Kong's Hang Seng Index decreased by 22.6% and 10.2%, respectively, in local currencies. The worst-performing equity fund indices were the ones that track the Greater China Equity and Asia Pacific ex-Japan Equity categories, down 10.3% and 6.7%, respectively. Other poor performers include the Morningstar International Equity Fund Index, with a 4.6% loss, and Asia Pacific Equity and Emerging Markets Equity, which were both down 3.9%.

Three of the seven fixed-income fund categories tracked by Morningstar posted modest gains last month. The Morningstar Canadian Long Term Fixed Income Fund Index was up 0.5%, while the Global Fixed Income and Canadian Fixed Income fund indices gained 0.2% and 0.1%, respectively. The worst fixed-income performer -- and worst fund category overall -- was Preferred Share Fixed Income, which lost 10.7%.

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 Indices1 month
Precious Metals Equity 5.4
Canadian Long Term Fixed Income 0.5
Global Fixed Income 0.2
Canadian Fixed Income 0.1
U.S. Money Market 0.0
Canadian Money Market 0.0
Canadian Synthetic Money Market 0.0
Canadian Short Term Fixed Income -0.1
Cdn Inflation-Protected Fixed Income -0.3
2020 Target Date Portfolio -0.7
Canadian Fixed Income Balanced -0.8
Canadian Dividend & Income Equity -0.8
Canadian Neutral Balanced -0.9
2025 Target Date Portfolio -1.2
Global Fixed Income Balanced -1.2
2015 Target Date Portfolio -1.2
Canadian Equity Balanced -1.2
Canadian Equity -1.4
High Yield Fixed Income -1.4
Real Estate Equity -1.5
Energy Equity -1.5
Global Neutral Balanced -1.8
2025+ Target Date Portfolio -1.8
Tactical Balanced -1.9
Canadian Focused Equity -2.3
Global Equity Balanced -2.6
Global Small/Mid Cap Equity -3.0
North American Equity -3.0
Natural Resources Equity -3.2
Global Equity -3.8
Asia Pacific Equity -3.9
Emerging Markets Equity -3.9
Financial Services Equity -4.0
Cdn Focused Small/Mid Cap Equity -4.1
European Equity -4.3
Canadian Small/Mid Cap Equity -4.4
U.S. Small/Mid Cap Equity -4.4
U.S. Equity -4.5
International Equity -4.6
Asia Pacific ex-Japan Equity -6.7
Greater China Equity -10.3
Preferred Share Fixed Income -10.7
Data as of Jan. 31, 2016


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