Europe Leads as Equity Funds Bounce Back in July, Morningstar Data Show

TORONTO, Aug. 4 /CNW/ - After three disappointing months during the second quarter, equity funds in Canada had their best monthly performance of the year in July, spurred by a strong rebound in financial services stocks following hints that upcoming banking regulations may not be as strict as anticipated. All but two of the 24 Morningstar Canada Fund Indices that track equity fund categories had positive returns for the month, with most of them gaining more than 3%, according to preliminary performance data released today by Morningstar Canada.

"The Basel Committee on Banking Supervision, which sets guidelines for capital and banking regulations around the world, published guidance that suggested its upcoming principles on new capital and liquidity would be watered down from their original version, and that their implementation would be delayed until 2018. This put wind in the sails of global financial stocks," said Esko Mickels, fund analyst for Morningstar Canada.

Financials were the main drivers of returns for funds in the European Equity category, which posted the best return among all fund indices with a 7.8% gain. "Further helping European bank stocks were stress tests performed on 91 banks that showed only seven of them had inadequate capital reserves," Mickels said. Currency effects also boosted European equity funds, with the euro gaining 3.2% relative to the Canadian dollar.

Funds that focus on the financial services sector had the second-strongest return after European Equity, with the Morningstar Financial Services Equity Fund Index gaining 6.3%. Rounding out the top five were the fund indices that track the Emerging Markets Equity, Real Estate Equity, and International Equity categories, with returns of 6.2%, 6.1%, and 5.7%, respectively.

Among domestic equity fund categories, the best-performing fund indices were Canadian Focused Equity and Canadian Equity with gains of 4.2% and 4%, respectively, reflecting the 4% return of the S&P/TSX Composite Index. As in Europe, financials were the dominant theme among Canadian large-cap stocks, with the S&P/TSX Capped Financials Index gaining 6.6% for the month. Meanwhile the Canadian Small/Mid Cap Equity and Canadian Focused Small/Mid Cap Equity fund indices are both up 3.8% for the month.

South of the border, U.S. stocks posted their largest monthly advance of the year, with the S&P 500 Index adding 7%. "Earnings topped analyst estimates for more than three quarters of the companies that reported," Mickels said. However, the Canadian dollar appreciated by 3.1% against the U.S. dollar, which trimmed that gain for Canadian investors; the Morningstar U.S. Equity Fund Index returned 4% for the month.

For more on July 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 360,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 21 countries.

SOURCE Morningstar Research Inc.

For further information: For further information: Esko Mickels, Fund Analyst, Morningstar Canada, (416) 484-7815; Christian Charest, Editor, Morningstar Canada, (416) 484-7817


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