Japanese Equity Funds Sink While Emerging Markets Soar in March, Morningstar Canada Data Show

TORONTO, April 4 /CNW/ - A devastating natural disaster in Japan, a nuclear crisis, and continuing unrest in the Arab world created a volatile ride for equity fund investors in March. However, by the end of the month, the majority of investment funds in Canada with equity or balanced mandates had recouped most of their losses and finished with flat returns, according to preliminary performance data released today by Morningstar Canada.

The month's volatility was nowhere more evident than in the Japanese Equity category. Before Japan was hit with its strongest earthquake in history on March 11, the Nikkei 225 Index was looking at a month-to-date loss of about 1.8%. By market close on March 15, after concerns about a possible nuclear meltdown at the Fukushima nuclear power plant caused a massive sell-off, the index had dropped another 17.5%. It subsequently regained a large portion of those losses to end the month down 8.2% in local currency terms. Also affecting performance for Canadian investors were the movements of the Japanese yen relative to the Canadian dollar, which followed a path similar to the Nikkei and eventually lost 1.3% for the month. As a result, the Morningstar Japanese Equity Fund Index posted a one-month loss of 9.7%, the worst among all 44 Morningstar Canada Fund Indices by a wide margin.

Also touched by the losses in Japan were funds in the International Equity category, which on average allocate 16.7% of their assets to Japanese equities. The Morningstar International Equity Fund Index lost 1.6% in March, tied for second-worst performance with the Morningstar European Equity Fund Index. European stocks, which also comprise the bulk of the assets in international equity funds, continue to be plagued by uncertainty over high sovereign debt in several European countries.

The best performers among the Morningstar Canada Fund Indices were the ones that track the Emerging Markets Equity, Greater China Equity, and Asia Pacific ex-Japan Equity categories, with gains of 4.7%, 4.5% and 3.9%, respectively. "Emerging market funds were partly helped by China's manufacturing growth, which in turn boosted returns on its commodities and financial sectors," said Morningstar Fund Analyst Adam Fisch. "In addition, South Korea saw growth in its export sector, paired with a strengthening of its currency against the Canadian dollar. Many emerging market stocks faced a quick drop and steady recovery following the Japanese earthquake and tsunami, and investors were often best served by holding on to their investments rather than jumping ship."

On the Canadian equity markets, a poor showing by natural resources companies was compensated by good results in the financial services industry, leading to a muted 0.1% gain for the S&P/TSX Composite Index. The nearly 5% increase in the price of crude oil did little to help the country's largest players in that sector, with Suncor Energy Inc., Canadian Natural Resources Ltd., and Talisman Energy Inc. all posting losses in March. This resulted in a 1.4% loss for the Morningstar Natural Resources Equity Fund Index. Meanwhile, sector-diversified funds in the Canadian Equity category posted an average loss of 0.2%. Overall, 27 of the 44 fund indices had returns ranging from 0.5% to -0.5%.

For more on March 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.

About Morningstar
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 Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 380,000 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. 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


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