TORONTO, Aug. 5, 2014 /CNW/ - Mutual funds in Canada that invest in Asian stocks, particularly those that have large holdings in China, were the best performers in July. Income-focused funds also continued to produce gains, but many equity or balanced categories were either flat or negative during the month. Thirty of the 41 Morningstar Canada Fund Indices, which measure the aggregate returns of funds in various standard categories, had positive results during the month, though 17 of them increased by 0.5% or less, according to preliminary performance numbers today released by Morningstar Canada.
The best performer among all Morningstar Canada Fund Indices was the one that tracks the Greater China Equity category. It increased by 8%, reflecting growth of 6.5% and 6.8% for the Shanghai Composite Index and Hong Kong's Hang Seng Index, respectively, as well as the Canadian dollar's depreciation of more than 2% against both the Chinese yuan and the Hong Kong dollar. Also benefitting from China's strength were funds in the Asia Pacific ex-Japan Equity, Asia Pacific Equity, and Emerging Markets Equity categories, which increased by 5%, 3.7%, and 3.5%, respectively.
"Chinese stocks experienced their largest monthly gain since December 2012. Stock returns were driven by expectations that government stimulus—in the form of cutting reserve requirement ratios for some lenders, reducing taxes, and bringing forward railway spending—would boost economic growth," Morningstar Manager Research Analyst Vishal Mansukhani said.
Another top performer in July was the Morningstar Canadian Inflation Protected Fixed Income Fund Index, which posted an increase of 2%. Inflation-protected bonds increase in value when inflation is up, and consumer price indexes on both sides of the border have registered above- or at-target levels for the first time in more than two years.
Canadian equity markets were a mixed lot in July, with the financial services sector up 4.8% but energy down 4.7%, while the materials sector was relatively flat at 1%. Overall, the S&P/TSX Composite Total Return Index posted an increase of 1.4% for the month. For domestic equity funds, this resulted in increases of 1.6%, 1.2%, and 0.2% for the Canadian Equity, Canadian Dividend & Income Equity, and Canadian Focused Equity fund indices, respectively, and decreases of 1% and 1.6% for Canadian Small/Mid Cap Equity and Canadian Focused Small/Mid Cap Equity, respectively.
Aside from Asian equities, July was not a good month for foreign equity funds. The Morningstar U.S. Equity and Global Equity fund indices both decreased by 0.2%, while the International Equity fund index was down 0.5%. One of the worst performers was the Morningstar European Equity Fund Index, which decreased by 2.5% for the month.
"Losses for stocks around the world were driven by economic data that sparked concern the U.S. Federal Reserve could raise interest rates sooner than expected. Problems in overseas economies contributed to the pessimistic mood after Argentina defaulted on its sovereign debt for the second time in 12 years," Mansukhani said.
Funds that focus on natural resources stocks, which have produced spectacular returns so far in 2014, paused their ascent in July. The Morningstar Precious Metals Equity Fund Index decreased by 1%, while the Natural Resources Equity and Energy Equity fund indices were down 2.4% and 4.7%, respectively. These three categories still lead all others by a considerable margin for the year to date.
"Oil prices fell in July in light of fears concerning global demand, after hitting highs in June because of global political tensions. Rising gasoline stockpiles in the United States, even during peak driving season, have raised concerns over demand for oil in that country," Mansukhani said.
For more information about July 2014 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 Research Inc. and Morningstar, Inc.
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 individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 473,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 12 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and has approximately US$169 billion in assets under advisement or management as of June 30, 2014. The company has operations in 27 countries.
SOURCE: Morningstar Research Inc.
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