Fund investors come out ahead in the first quarter, Morningstar data shows

    TORONTO, April 3 /CNW/ - All but one of the 42 Morningstar Canada Fund
Indices posted gains during the first quarter of 2007, led by three categories
that focus on small and mid-cap stocks. According to preliminary fund
performance data released today by Morningstar Canada, the best performer for
the three-month period was the Morningstar Canada Global Small/Mid Cap Equity
Fund Index, which gained 5.6%. In second and third place were the Canadian
Small/Mid Cap Equity and Canadian Anchored Small/Mid Cap Equity fund indices
with returns of 5.1% and 4.4%, respectively.
    "The resource run over the past quarter has helped Canadian small- and
mid-cap funds," said Morningstar Canada fund analyst Bhavna Hinduja. "The
energy and materials sectors represent about half the holdings of both
Canadian small-cap fund indices. On the global front, despite tightening
monetary policies across most European and Asian central banks, global
liquidity has been quite robust, which has worked well for global small- and
mid-cap funds. Moreover, investors have been shifting focus from U.S. equity
markets to developed European economies and developing Asian markets, which
has partly driven returns in this fund category."
    The fourth-best fund index for the quarter was Natural Resources Equity,
up 4.1%. These funds had a slow start to the year, with the index posting one
of the lowest returns in January (0%), followed by a 0.9% gain in February.
But the resources index came charging back in March with a 3.2% return, the
best among all categories for the month. "This sector has had a great run,
primarily on the back of base metals and energy," Hinduja said. "Fears
concerning the Chinese equity market sent tremors around the world last month
that impacted all sectors, including gold. But a colder than normal February
in North America led to a reduction in oil and natural gas inventories, which
boosted the prices of these commodities; this provided resilience to broadly
based resource funds."
    Rounding out the top five for the quarter was the Real Estate Equity fund
index. Despite losing 1.9% in March - the third worst loss among all fund
indices - the index rode out its early gains (including a second-place 3.6% in
January) and ended the quarter up 3.4%.
    At the bottom of the quarterly rankings, the U.S. Equity fund index was
the only one in negative territory with a 0.6% loss. "Worries over the U.S.
sub-prime mortgage sector that began in mid-February have had a ripple effect
across equity markets south of the border," Hinduja said. "The nation's
financial sector took it on the chin, with the S&P 500 Banks Index down about
3% for the quarter. The big equity sell-off of Feb. 27, which mostly resulted
from concerns about a possible economic slowdown in China, also demonstrated
sub-prime anxieties in the U.S. Also amplifying investor fears is the U.S.
Federal Reserve's bias toward raising rates to curb higher inflation. Core
inflation accelerated for three consecutive months from December to February.
Meanwhile, the U.S. dollar depreciated against the loonie by 0.8% over the
past quarter, which has also negatively affected the performance of U.S.
equity funds."
    Portfolio funds for the most part had middling returns, with 10 of the 12
portfolio fund indices posting returns between 1% and 1.6%. The two indices
that represent target-date funds with the longest maturities - 15 Year Target
Date Portfolio and 15 Year+ Target Date Portfolio - suffered losses of 0.7%
and 1% respectively in March, which dropped their quarterly results to 0.3%
and 0.2% respectively. Both of these indices had returns of about 1% in
January but were flat in February.
    Meanwhile, the Morningstar Canada High Yield Fixed Income Fund Index,
whose constituent funds often behave more like equity products than like other
bond funds, easily outpaced other fixed income categories last quarter. It
returned 2.6% while the other five fund indices in that group all gained
between 0.2% and 0.9%.
    For the month of March, the second-best performer after Natural Resources
Equity was the European Equity fund index, which managed to gain 2.7% despite
losing some ground early in the month. European equity funds felt the
aftershock of the Feb. 27 correction for several days after the sell-off,
leading to a 1.5% loss in the first two days of March. But this was followed
by a rally in European stock markets that saw the DAX (Germany), the FTSE 100
(UK) and the CAC 40 (France) each rise about 3% by month's end. The fund index
was the sixth best performer for the quarter with a 3.1% gain.
    After leading the pack in February, the Japanese Equity fund index was
the worst performer in March with a 2.8% loss. It was another roller-coaster
ride for the funds in this volatile category as they followed the ups and
downs of the Japanese stock market. The Nikkei 225 Index lost more than 5% in
the first three business days of the month, and each of its subsequent
attempts at recovery was quickly followed by another drop. The Japanese Equity
fund index returned 0.5% for the quarter, ranking seventh from the bottom.

    For more on March fund performance, go to

    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 next week.

    About Morningstar

    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 and
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 190,000
investment offerings, including stocks, mutual funds, and similar vehicles.
The company has operations in 15 countries and minority ownership positions in
companies based in three other countries.

For further information:

For further information: Bhavna Hinduja, Fund Analyst, Morningstar
Canada, (416) 489-7074, ext. 246,; Christian
Charest, Associate Editor, Morningstar Canada, (416) 489-7074, ext. 226,

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