Funds Recover Most of Their Year-Earlier Losses in 2009, Morningstar Data

TORONTO, Jan. 5 /CNW/ - Equity and balanced funds in Canada posted strong returns in 2009, recovering a large portion of the heavy losses they incurred in 2008. All but one of the Morningstar Canada Fund Indices that track either equity or balanced fund categories had positive returns for the year, according to preliminary performance data released today by Morningstar Canada. However, none of the equity fund indices have recovered beyond their early 2008 levels.

Five of the fund indices posted calendar-year returns above 50%, all of them tracking categories whose constituent funds are largely affected by commodity prices. The best performer for the year was the Morningstar Precious Metals Equity Fund Index with a gain of 57.9%, followed by Canadian Focused Small/Mid Cap Equity and Natural Resources Equity with gains of 55.9% and 55.1%, respectively. Also in the top five were the fund indices that track the Emerging Markets Equity (53.3%) and Canadian Small/Mid Cap Equity (52.5%) categories.

"The strong rebound in natural resource equities last year was a reflection of several developments, including the stockpiling of many key base metals by China, prospective improvements in production growth and demand for energy, and the start of a recovery in G7 nations," said Nick Dedes, fund analyst for Morningstar Canada. "As investors get increasingly comfortable with holding riskier assets amid improving credit conditions and economic prospects, smaller capitalization equities-particularly in the energy and resource sectors-have gained noticeable traction."

Along with solid performances from the world's stock markets, currency effects were a major story in 2009 for Canadian holders of foreign equity funds, with the strengthening loonie detracting greatly from these funds' returns. Nowhere was this more evident than in the Japanese Equity category, where the benchmark Nikkei 225 Index's 19% gain for the year when expressed in Japanese currency was more than wiped out by the Canadian dollar's 20% appreciation against the yen. "This dragged the category deep into negative territory, with the Morningstar Japanese Equity Fund Index posting a 9.7% loss," Dedes said. "Also, most of the Nikkei's gains came in December following the Bank of Japan's decision to apply further quantitative easing."

Other regions in Asia performed much better despite experiencing similar currency depreciation against the loonie. Notably, the Shanghai Composite Index gained 80% in 2009, while indices in Taiwan, Hong Kong, and Seoul were up 78.3%, 52%, and 49.7%, respectively, when expressed in local currency terms. As a result, the Morningstar Greater China Equity Fund Index gained 38.6% for the year, ranking sixth among all 43 fund indices, while the Morningstar Asia Pacific ex-Japan Equity Fund Index finished with an eighth-place 36.3% return.

Funds in the U.S. Equity category weren't so fortunate. Though the benchmark S&P 500 Index gained a respectable 26.5% for the year, the loonie's 17% appreciation against the U.S. dollar limited the Morningstar U.S. Equity Fund Index's return to 10.7%. "Not surprisingly, the greenback came under significant pressure last year as tremendous amounts of government stimulus spending added to the ballooning U.S. budget deficit. It appears that this weight may remain for some time, though we've seen instances of short-term strength and a flight to U.S. Treasuries at the height of the credit crisis," Dedes said.

Among the seven balanced fund categories, only the two that favour fixed-income securities have managed to climb beyond their previous highs. The Global Fixed Income Balanced and Canadian Fixed Income Balanced fund indices, which had suffered relatively tame losses of 15.4% and 13.1%, respectively, between May 31, 2008, and Feb. 28, 2009, have since posted gains of 18.9% and 17.7%, respectively, which took them back to positive territory.

For more on 2009 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 more than 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 20 countries and minority ownership positions in companies based in two other countries.

SOURCE Morningstar Research Inc.

For further information: For further information: Nick Dedes, Fund Analyst, Morningstar Canada, (416) 484-7823; 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