TORONTO, Jan. 4, 2012 /CNW/ - After two years of solid gains in 2009 and
2010, equity funds in Canada had mostly negative returns in 2011 amid
roller-coaster-like volatility. Among the 22 Morningstar Canada Fund
Indices that measure the aggregate performance of equity fund
categories, only the ones that track the Real Estate Equity and Health
Care Equity categories ended the year in positive territory, with
increases of 12.1% and 7.1%, respectively, while most other fund
categories posted double-digit declines. Also, fixed income funds
posted impressive rises, according to preliminary performance numbers
released today by Morningstar Canada.
"Funds in most equity categories struggled under the uncertainty that
accompanied natural disasters, the European debt crisis, and continued
turmoil in the Middle East," said Morningstar Fund Analyst Adam Fisch.
Hardest hit by this uncertainty were Asian markets, whose fast-growing
economies depend to a large extent on sustained growth from the
developed world. The Morningstar Greater China Equity Fund Index
suffered a 21% decline for the year, while the fund indices that track
the Emerging Markets Equity, Asia Pacific Equity, and Asia Pacific
ex-Japan Equity categories dropped 18.7%, 16.5%, and 15.1%,
respectively. Market losses in the region were actually more severe,
but Canadian fund investors benefited from currency effects that saw
the Canadian dollar lose ground against the Hong Kong dollar and the
The worst performer among all Morningstar Canada Fund Indices was the
one that tracks the Precious Metals Equity category, which declined
24.5% for the year. "Despite gold having another solid year, up more
than 10%, precious metals stocks failed to move in step as investors
displayed a lack of appetite for risk," Fisch said.
Lack of confidence in global markets also led to declining commodity
prices, which hurt Canadian equity funds particularly hard considering
the significant weight that resources occupy in Canadian portfolios.
The energy sector in Canada lost 14.8% in 2011, while the materials
sector lost 21.2%; these two sectors together account for roughly half
of the domestic stock market. As a result, the Morningstar Canadian
Equity Fund Index posted a decline of 10.4%, while the Morningstar
Canadian Small/Mid Cap Equity Fund Index dropped 10.2%. The
best-performing domestic equity fund category was Canadian Dividend &
Income Equity, which declined just 1.1% owing to a much smaller
exposure to resources by the category's constituent funds.
Despite a constant barrage of negativity throughout the year, the U.S.
stock market proved resilient and benefited from the flight to quality
that hurt emerging markets funds, signalling that when the going gets
tough, many investors still consider the United States as a safe haven.
The S&P 500 Index (measured in U.S. dollars) eventually closed out the
year with a modest positive increase of 2.1%. For Canadians who hold
funds in the U.S. Equity category, this translated into a decline of
0.8% after incorporating currency effects and fund fees.
As is often the case when equity markets falter, fixed income funds
benefited from their status as safe harbours and posted strong gains
for the year. The Morningstar Canadian Long Term Fixed Income Fund
Index had the biggest increase among all fund indices with 17.3%, while
Canadian Inflation-Protected Fixed Income was second with 14.9%. The
broader Canadian Fixed Income category rose 7.4% for the year.
Meanwhile, the 11 fund indices that track balanced or target-date
portfolio categories had varying performance that depended greatly on
the proportion they allocated to bonds versus equities. Performance
ranged from a 4.2% rise for the 2015 Target Date Portfolio fund index,
which has constituent funds that hold mostly bonds and cash, to a 6.7%
decline for Tactical Balanced.
For more on 2011 fund performance, go to www.morningstar.ca.
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.
Morningstar Research Inc. is a Canadian subsidiary of Chicago-based
Morningstar, Inc., a leading provider of independent investment
research in North America, Europe, Australia, and Asia. The company
offers an extensive line of products and services for individuals,
financial advisors, and institutions. Morningstar provides data on
approximately 330,000 investment offerings, including stocks, mutual
funds, and similar vehicles, along with real-time global market data on
more than 5 million equities, indexes, futures, options, commodities,
and precious metals, in addition to foreign exchange and Treasury
markets. Morningstar also offers investment management services and has
more than $167 billion in assets under advisement and management as of
Sept. 30, 2011. The company has operations in 26 countries.
SOURCE Morningstar Research Inc.
For further information:
Adam Fisch, Fund Analyst, Morningstar Canada, (416) 484-7815; Christian Charest, Editor, Morningstar Canada, (416) 484-7817