TORONTO, July 3 /CNW/ - After a poor showing in the first three months of
2008, investment funds that focus on foreign equities suffered more losses in
the second quarter, according to preliminary performance data released today
by Morningstar Canada. Rising commodity prices, inflation fears and persisting
concerns over the health of the economy in the United States drove many of the
world's markets down over the last three months, particularly in June.
Practically all foreign equity categories were in the red for the
quarter, with losses ranging from 1.8% for the Morningstar Emerging Markets
Equity Fund Index to 4.7% for the Morningstar Asia Pacific Equity Fund Index.
The only sector-diversified foreign equity categories to post gains were U.S.
Small/Mid Cap Equity with 2.5% and Japanese Equity with 0.3%.
But the funds that were hit hardest were those that target the financial
sector, as the credit crisis continued to play havoc. The Morningstar
Financial Services Fund Index lost 7.7% for the quarter and 10% for the month
of June alone. For both periods these were the worst returns among the 42
Morningstar Canada Fund Indices. Also affected was the Morningstar Real Estate
Equity Fund Index, which lost 6.5% for the quarter and 8.2% in June - second
worst in both cases.
"The plight of financials worsened in June, particularly in the U.S.,
where the financials sub-index of the S&P 500 dropped almost 19% (in US$),"
said Jordan Benincasa, fund analyst for Morningstar Canada. "Optimists had
looked for a short and shallow period of firms purging bad loans, but it
became a protracted credit crunch that crimped or eliminated profits of
companies well beyond Wall Street banks."
While skyrocketing commodity prices represent cost increases - and
tightening profit margins - to many of the world's economies, they are a boon
to the resource-rich Canadian market. The Morningstar Natural Resources Equity
Fund Index had the best overall return in the second quarter with 14.2%,
followed by the Canadian Equity and Canadian Income Trust Equity fund indices,
up 9.1% and 8.3%, respectively.
"These stellar returns stem from global thirst for energy, metals and
agricultural commodities," Benincasa said. "Oil crossed the US$140-per-barrel
threshold in late June, which helped drive up the prices of cheaper
alternatives like coal and natural gas. Moreover, demand for industrial metals
such as iron ore and copper has not abated."
Another effect of rising food and energy prices was an increased demand
for inflation-protected securities, which benefited funds in the Canadian
Inflation-Protected Fixed Income category. That group's fund index rose 3.5%
for the quarter, easily the best return among fixed-income categories in this
climate where many investors expect central banks to hike interest rates to
curb inflation. But Benincasa warns that yields have fallen sharply, which
could limit these funds' upside and make them a less than ideal place to park
For more on second-quarter fund performance, go to www.morningstar.ca.
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 www.morningstar.ca next week.
About Morningstar Canada and Morningstar, Inc.
Morningstar Canada is the 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 more than 270,000 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
For further information:
For further information: Christian Charest, Associate Editor,
Morningstar Canada, email@example.com, (416) 484-7817; Jordan
Benincasa, Fund Analyst, Morningstar Canada, firstname.lastname@example.org,