TORONTO, July 3, 2013 /CNW/ - Equity funds in Canada did poorly in June,
but 12 of the 22 Morningstar Canada Fund Indices that measure the
performance of equity fund categories still had positive results for
the second quarter of 2013. As was the case in the first quarter of
2013, funds that target U.S. and Japanese markets posted strong gains,
while natural resources-focused funds continued to suffer disastrous
losses, according to preliminary performance numbers released today by
Morningstar Research Inc. (Morningstar Canada), a subsidiary of
independent investment research provider Morningstar, Inc.
The index that measures the aggregate returns of funds in the Japanese
Equity category was the best performer for the quarter with an increase
of 8.7%. Despite a severe correction in early June for Japanese stocks,
the fund index managed to post a 5.5% increase for the month of June
that also topped all other fund indices, thanks to a partial market
recovery in the subsequent days, and to favourable currency effects for
Despite a slightly negative result in June, the Morningstar U.S. Equity
Fund Index remained among the leaders for the quarter with a 5.4%
increase, thanks to its solid performance in May. The Morningstar U.S.
Small/Mid Cap Equity Fund Index—one of only two equity fund indices,
with Japanese Equity, to increase in June—also did well with a 4.4%
increase for the quarter, while the indices that track the Global
Equity and North American Equity categories—which are heavily dependent
on U.S. equities—increased by 3.6% and 3.1%, respectively.
For the month of June, 20 of 22 equity fund indices were in the red,
along with all 11 indices that track balanced fund categories, as well
as the seven fixed-income fund indices. This was largely the result of
comments made in late May by U.S. Federal Reserve Chairman Ben Bernanke
hinting that the U.S. economy has improved to a point where the Federal
Reserve could start slowing the pace of its bond-buying program later
this year. Those comments not only sent global equity markets tumbling,
but also pushed interest rates higher, which in turn drove bond prices
With Japan as the notable exception, Asian equity funds were among the
worst performers, both for the month and the quarter. Chinese equities
were hit particularly hard, with the Shanghai Composite Index dropping
14% in June and 11.5% for the quarter in local currency terms. For
Canadian investors, this was partially offset by a depreciating dollar,
but the Morningstar Greater China Equity Fund Index still posted
decreases of 5.3% and 2.2% for the month and quarter, respectively. The
Asia Pacific ex-Japan Equity and Emerging Markets Equity fund indices
were also among the bottom performers with decreases of 4.2% and 6.6%,
respectively, for the quarter.
"In an unexpected move, China's central bank allowed interbank lending
rates to spike, causing fear of a possible cash crunch in China's
banking sector," said Morningstar Fund Analyst Joanne Xiao. "The market
subsequently recovered some of its losses after the central bank showed
there is sufficient liquidity in the economy and that its earlier
action was intended to fight off-balance-sheet nonbank lending."
For Canadian equity funds, the story continued to be the slumping
natural resources sector—particularly the price of gold, which lost
another 16% in June. The falling commodity dragged funds in the
Precious Metals Equity category, which posted an average decrease of
17.5% for the month and 34.9% for the quarter. The Natural Resources
Equity fund index was the second-worst performer for the quarter with
an 11.6% decrease, while the more broadly diversified Canadian Equity
fund index was down 2.8%.
"Gold is traditionally seen as a hedge against inflation. The Federal
Reserve's stimulus program injected large quantities of cash into the
U.S. banking system, which devalued the U.S. dollar and caused concerns
of possible inflation. With the new fears that these stimulus measures
may be withdrawn, the conditions for the previous gold rally no longer
exist, hence the drop in gold prices," Xiao said.
For more about June and second-quarter 2013 fund performance, go to www.morningstar.ca.
Morningstar Canada's preliminary fund performance figures are based on
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 Research Inc. and Morningstar, Inc.
Morningstar Research Inc. is a Canadian subsidiary of Chicago-based
Morningstar, Inc., a leading provider of independent investment
research in North America, Europe, Australia, and Asia. The company
offers an extensive line of products and services for individuals,
financial advisors, and institutions. Morningstar provides data on
approximately 422,000 investment offerings, including stocks, mutual
funds, and similar vehicles, along with real-time global market data on
more than 9 million equities, indexes, futures, options, commodities,
and precious metals, in addition to foreign exchange and Treasury
markets. Morningstar also offers investment management services through
its registered investment advisor subsidiaries and has approximately
US$157 billion in assets under advisement or management as of March 31,
2013. The company has operations in 27 countries.
©2013 Morningstar, Inc. All rights reserved.
SOURCE: Morningstar Research Inc.
For further information:
Christian Charest, Editor, Morningstar Canada, (416) 484-7817 or firstname.lastname@example.org