TORONTO, Feb. 4, 2014 /CNW/ - After posting mostly negative returns in
2013, mutual funds in Canada that invest in fixed-income securities
performed well in the first month of 2014 amid heightened volatility in
equity markets around the world. Most of the world's stock indexes
ended the month in negative territory, but a steep depreciation of the
Canadian dollar meant several foreign-equity fund categories were able
to eke out positive returns in January, according to preliminary
performance numbers today released by Morningstar Canada.
"The first two weeks in 2014 were quiet for global equity markets, but
negative headlines in late January increased volatility. The flight to
safety started with poor economic growth data from China, combined with
concerns about the country's government debt," Morningstar Fund Analyst
Achilleas Taxildaris said. "This in turn adversely affected developing
market currencies, some of which depreciated sharply in a matter of
days, forcing central banks to raise interest rates in an effort to
stop their fall."
All seven Morningstar Canada Fund Indices that measure the aggregate
returns of bond funds were up in January, led by the Morningstar
Canadian Long Term Fixed Income and Morningstar Canadian
Inflation-Protected Fixed Income fund indices, which increased by 5%
and 4%, respectively. The Morningstar Canadian Fixed Income Fund Index,
whose constituent funds are the most diversified among the
domestic-bond categories, increased by 2.4% for the month.
Funds in the beleaguered Precious Metals Equity category, which were the
biggest losers last year, also benefitted from the month's volatility;
the fund index that tracks that group increased 16.4% in January.
Among domestic-equity categories, the best performer was the Morningstar
Canadian Focused Small/Mid Cap Equity Fund Index with an increase of
0.7%. The Canadian Equity fund index increased 0.2%, while Canadian
Focused Equity, Canadian Small/Mid Cap Equity, and Canadian Dividend &
Income Equity decreased by 0.2%, 0.3%, and 1%, respectively.
Though the Canadian stock market significantly outperformed those of the
United States and other developed economies, Canadian funds that target
foreign equities had returns that were comparable to those of
domestic-equity funds due to currency effects. The Morningstar European
Equity Fund Index increased 0.4% for the month, despite major stock
indexes in Germany, France, and the United Kingdom losing between 2.6%
and 3.5% in local currencies. Similarly, funds in the U.S. Equity
category averaged no return while the S&P 500 Index decreased 3.5% when
measured in U.S. dollars.
"Canadian equity funds faced a strong headwind versus their
international counterparts because of the depreciating Canadian dollar.
While the loonie has quietly depreciated during the past year, it lost
more than 4 cents to the U.S. dollar last month, reaching its lowest
point since July 2009. Weak data on the Canadian economy along with the
more dovish tone of Bank of Canada Governor Stephen Poloz drove the
Canadian dollar down," Taxildaris said.
Asian equity fund categories found themselves at the bottom of the
performance table last month. The Asia Pacific Equity, Asia Pacific
ex-Japan Equity, and Greater China Equity fund indices decreased by
0.6%, 1.5%, and 1.8%, respectively, while the Japanese Equity fund
index dropped 3.4%. Among the more regionally diversified categories,
the Global Equity fund index increased 0.2%, while International Equity
was down 1.4%.
For more about January 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
437,000 investment offerings, including stocks, mutual funds, and
similar vehicles, along with real-time global market data on more than
10 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
registered investment advisor subsidiaries and has approximately US$176
billion in assets under advisement or management as of Sept. 30, 2013.
The company has operations in 27 countries.
©2014 Morningstar, Inc. All rights reserved.
SOURCE: Morningstar Research Inc.
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