Disastrous November for Canadian equity funds, Morningstar data show

    TORONTO, Dec. 4 /CNW/ - Mutual and segregated funds that invest in
Canadian equities, particularly those that focus on the resource sectors, took
a serious hit in November, as the S&P/TSX Composite Index posted its worst
one-month performance in more than five years. This dragged all domestically
focused equity and balanced fund categories into the red, and 30 of the 42
Morningstar Canada Fund Indices suffered losses for the month, according to
preliminary performance data released today by Morningstar Canada.
    At the bottom of the rankings with an 8.6% loss was the highly volatile
Morningstar Precious Metals Equity Fund Index, whose constituent funds hold on
average about three-quarters of their assets in domestic stocks. Other
categories that experienced heavy losses last month include Canadian Small/Mid
Cap Equity (-8.1%), Natural Resources Equity (-7.5%), Canadian Focused
Small/Mid Cap Equity (-6.9%) and Canadian Equity (-6.1%).
    "While the surge in resources has been beneficial for Canadian equity and
small- and mid-cap funds over the past several years, the risks associated
with having high concentrations in that area were on full display in
November," said Jordan Benincasa, fund analyst with Morningstar Canada.
"Despite historically high oil prices, the new Alberta Royalty regime
adversely affected oil and gas stocks by creating concerns that companies
would have less incentive to initiate new projects. For instance, Canadian
Natural Resources Ltd. noted that the new framework has led to reduced
economics for provincial natural-gas drilling, and the company seems content
to let natural gas production decline in the near term while turning its
attention elsewhere."
    Currency movements were once again a major factor affecting the returns
of foreign equity funds last month. But while the Canadian dollar's rise had
been detracting from these funds' performance in previous months, the scenario
was the exact opposite in November. Most of the world's major stock market
indexes suffered significant losses during the month as the sub-prime mortgage
fallout and real estate downturn in the U.S. continued to take their toll, but
these losses were largely negated by the loonie's sharp depreciation.
    For instance, in the UK, the FTSE 100 Index lost 4.3% but the pound
appreciated by roughly the same margin against the dollar during the month.
Similarly, the S&P 500 Index of large-cap U.S. companies was down 4.2%, but
Canadian investors benefited from a 5.1% rise in the U.S. dollar versus its
Canadian counterpart. The effect was even more pronounced with funds that
focus on Japan, where the benchmark Nikkei 225 Index dropped 6.3% and the yen
gained 8.6%.
    As a result, the Morningstar Global Equity Fund Index lost just 0.1% for
the month, while the International Equity, U.S. Equity and European Equity
fund indices were up 0.4%, 0.3% and 0.1%, respectively. Meanwhile, the
Morningstar Japanese Equity Fund Index ended the month with a net gain of
1.6%, its best monthly performance since February; however, its year-to-date
return of -17.3% is still the second-worst among all fund indices.
    The slumping loonie also gave a badly needed boost to funds in the
struggling Health Care Equity category, which invest almost exclusively in
U.S. and overseas stocks. The Morningstar Canada Fund Index that tracks that
group had suffered losses in seven of the first 10 months of 2007, and as of
Oct. 31 its year-to-date loss of 12% was the third worst performance among all
fund indices. The fund index gained 4.3% in November, topping all others and
paring back its year-to-date loss to 8.4%.
    "After a multi-year stretch of underperformance, the Health Care category
has shown some signs of life. However, not all stocks in the sector benefited
equally," Benincasa said. "Large-cap drug makers such as Pfizer continue to
struggle under the weight of increased generic competition, while
biotechnology bellwether Amgen has suffered amid potential regulatory
    As is typical during months of sagging equity markets, fixed-income
categories found themselves near the top of the fund index rankings in
November. Currency effects helped the Morningstar Global Fixed Income Fund
Index turn in the second-best return overall - a gain of 3.8%. Canadian Long
Term Fixed Income came in third with a 2% gain, while Canadian Fixed Income
and Canadian Short Term Fixed Income ranked fifth and sixth, up 1.2% and 0.8%
respectively. Fixed income funds benefited during this tumultuous period on
expectations that the U.S. Federal Reserve would cut interest rates in order
to ease the liability burden for struggling lending institutions.
    For more on November fund performance, go to www.morningstar.ca.
    Morningstar Canada releases preliminary fund performance figures at the
beginning of each month, giving investors an early indication of how fund
categories fared during the previous month. The preliminary numbers are based
on the change in funds' net asset values per share during the month, and do
not necessarily include end-of-month income distributions such as dividends,
interest or capital gains. Final performance figures will be published on
www.morningstar.ca next week.

    About Morningstar Canada

    Morningstar Canada is the Canadian subsidiary of Chicago-based
Morningstar, Inc., a leading provider of independent investment research.
Morningstar Canada produces the popular PALTrak and Morningstar Advisor
Workstation investment-fund research tools, and is a major source of Canadian
investment fund information through Morningstar.ca and MorningstarAdvisor.ca.
Morningstar Canada is also a leading provider of Web-based solutions for fund
industry Web sites, and provides consulting services based on its data and
related analysis. Morningstar, Inc. provides data on approximately 260,000
investment offerings, including stocks, mutual funds and similar vehicles. The
company has operations in 18 countries and minority ownership positions in
companies based in three other countries.

For further information:

For further information: Jordan Benincasa, Fund Analyst, Morningstar
Canada, (416) 484-7821, jordan.benincasa@morningstar.com; Christian Charest,
Associate Editor, Morningstar Canada, (416) 484-7817,

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890