Financials lead as rally in equity funds continues in July, Morningstar Canada data show

    TORONTO, Aug. 5 /CNW/ - Strong performance in the financial services
sector led Canadian equity funds to a fifth consecutive month of positive
results in July, according to preliminary performance data released today by
Morningstar Canada. Most foreign equity funds also made gains. However, their
returns were significantly reduced by a strengthening Canadian dollar, despite
all major European, Asian, and Latin American stock markets outperforming the
Canadian market.
    Forty of the 43 Morningstar Canada Fund Indices advanced during the
month, led by the Morningstar Financial Services Equity Fund Index and its
9.8% gain. "The financial services sector showed renewed signs of life in July
as corporate earnings reports helped drive speculation that the industry may
be starting to turn a corner," said Neal Brandon, fund analyst for Morningstar
Canada. "Major U.S. banks including Goldman Sachs and JP Morgan Chase reported
better-than-expected earnings during the month, benefiting from common themes
of strong underwriting fees and increased trading revenues. In Canada, life
insurers and asset managers were buoyed by the renewed confidence and positive
performance in the equity markets."
    Financials were also the main contributor of returns for
sector-diversified domestic equity funds. The Morningstar Canadian Dividend &
Income Equity Fund Index, whose constituent funds, on average, allocated 42.5%
of their assets to the sector at the beginning of July, posted the second-best
return among fund indices with a 5% gain. The Canadian Equity and Canadian
Focused Equity fund indices, which both hold more than a quarter of their
assets in financials, were up 4.1% and 3.9%, respectively, ranking third and
fifth. Rounding out the top five was the Morningstar Canadian Equity Balanced
Fund Index, which ranked fourth with a 4% return.
    Among foreign equities, the best-performing fund index in July was the
one that tracks the Asia Pacific Ex-Japan Equity category, which gained 3.8%.
Many stock market indices in that region, boosted by indications of further
economic growth, posted double-digit returns when measured in local
currencies. Notably, the Shanghai Composite Index gained 15.3%, supported by
further government stimulus spending and improving investor sentiment.
However, the sharp appreciation of the Canadian dollar against the Chinese
yuan (7.8%), the Hong Kong dollar (7.7%), and the South Korean won (3.3%),
among others, detracted from those returns.
    The situation was similar for funds that focus on U.S. and European
equities, as well as the broadly diversified International Equity and Global
Equity categories. In the United States, the S&P 500 Index's 7.6% gain was
virtually wiped out by the U.S. dollar's 7.2% drop against the loonie,
resulting in a modest 0.6% gain for the Morningstar U.S. Equity Fund Index.
Meanwhile, returns of 8.5%, 9.1%, and 10.9% by market indices in the UK,
France, and Germany, respectively, were coupled with the loonie's rise of 5.8%
against the euro and 6% versus the UK pound. The European Equity, Global
Equity, and International Equity fund indices were up just 1.6%, 1.9%, and 2%,
    "The Canadian dollar rebounded sharply in July, supported by a run in
commodity prices and a return of risk appetite in the equity markets," Brandon
said. "The commodities rally was driven by the prospect of increased demand
from emerging markets and increased optimism that the economic downturn may be
easing. The Bank of Canada helped to reinforce this optimism with its forecast
for moderate growth over the quarter, drawing a line under the recession and
setting the tone for economic growth."
    For more on July fund performance, go to
    Morningstar Canada's preliminary fund performance figures 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. Final performance
figures will be published on next week.

    About Morningstar

    Morningstar Research Inc. is a Canadian subsidiary of Chicago-based
Morningstar, Inc., a leading provider of independent investment research. 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 nearly 325,000 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 19 countries and minority ownership positions in
companies based in three other countries.

For further information:

For further information: Neal Brandon, Fund Analyst, Morningstar Canada,
(416) 484-7821; Christian Charest, Associate Editor, Morningstar Canada, (416)

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