Resources, emerging markets continue to produce strong returns for fund holders in October, Morningstar data show

    TORONTO, Nov. 2 /CNW/ - The booming resource sector continued to fuel
robust returns for holders of investment funds that focus on these segments of
the market in October. The month also saw continued growth in the world's
emerging markets, which translated into solid gains for many foreign equity
fund categories, according to preliminary performance data released today by
Morningstar Canada.
    Thirty of the 42 Morningstar Canada Fund Indices had positive returns for
the month, led by the Morningstar Precious Metals Equity Fund Index and its
8.6% gain. "We're not particularly surprised by the spectacular performance of
precious metals funds in light of the price of gold climbing to its highest
level since 1980," said Bhavna Hinduja, fund analyst with Morningstar Canada.
"This was a result of the recent cuts in U.S. interest rates, which saw the
dollar weaken even further. Another factor favouring gold was the price of
crude oil rising above US$90 a barrel, which caused the markets to begin
worrying about inflation and a U.S. recession."
    The second best performing fund index was Asia Pacific ex-Japan Equity,
which gained 5.7% for the month despite depreciations in excess of 4% in the
currencies of China, Hong Kong and South Korea versus the Canadian dollar. In
particular, the Hong Kong Hang Seng Index was up 15.5% and the Shanghai
Composite was up 7.2%. "Investments in this region benefited from the U.S.
Federal Reserve's easing of interest rates," Hinduja said. "Stocks of Asian
exporters were boosted by the cuts, and strong growth data eased concerns
about the impact of a housing slump on the U.S. economy, which is Asia's main
export market."
    "Furthermore, China in particular has been driven by high-profile IPOs of
Chinese companies on U.S. exchanges this past month, such as Noah Educational
Holdings Inc., Longtop Financial Technologies and China Digital TV, which are
up 37%, 85% and 145%, respectively, since their debut. These IPOs have
continued to buoy the positive sentiment within the Chinese equity markets,"
Hinduja said.
    Strength in Asia also benefited funds in the broader Emerging Markets
Equity category, which on average allocate nearly half of their assets to
Asian markets. But these funds also got a helping hand from Latin American
markets such as Mexico and Brazil, whose main stock indexes rose by 3.8% and
7.2%, respectively. And while the Mexican peso dropped 2.7% against the
loonie, the Brazilian real gained 0.7% owing to the strength of its resource
exports. The Morningstar Emerging Markets Equity Fund Index was the third best
performer in October with a gain of 5.3%.
    Surging commodity prices were a boon for natural resources funds; the
Morningstar Natural Resources Equity Fund Index ended the month with a
fourth-best 5.1% return. Resource-rich Canadian equity funds also did well,
particularly those that target smaller domestic companies: The Canadian
Focused Small/Mid Cap Equity and Canadian Small/Mid Cap Equity fund indices
gained 4.9% and 4% and ranked fifth and sixth, respectively. Meanwhile, the
fund index that tracks the larger-cap Canadian Equity category returned 3.5%
for the month and came in seventh.
    The U.S. Equity fund index was near the bottom of the rankings with a
2.7% loss for the month, though this was again due to currency effects. The
S&P 500 Index, when measured in local currency, gained 1.6% for the month, but
for Canadian investors, the loonie's 4.9% appreciation versus the U.S. dollar
wiped away these gains since the majority of funds in that category don't
hedge their currency exposures. For the year to date, the U.S. Equity fund
index has lost 9.5%.
    But the slump that U.S. funds are experiencing pales in comparison to
that of Japanese equity funds, which have had to deal with both a sagging
market and a declining currency. Not only did the Nikkei 225 Index lose 0.3%
for the month, but the Japanese yen also fell by 5.2% against the Canadian
dollar, resulting in a 5.2% loss for the Morningstar Japanese Equity Fund
Index in October. This was the worst performance of any fund index for the
month, and it drags the index's year-to-date return down to -18.6%, also worst
    European markets had a decent showing in October, with the major stock
indices in France, Germany and the UK returning between 2% and 4%. But as with
U.S. equity funds, these gains were nullified for Canadian fund investors by
the loonie's rise against the euro (3.1%) and the pound (2.9%). The
Morningstar European Equity Fund Index lost 0.5% for the month. The strength
of the Canadian currency is also responsible for the poor showings of the
Morningstar International Equity Fund Index (down 0.4%) and the Morningstar
Global Equity Fund Index (down 0.8%).
    For more on October 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 Canada

    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
250,000 investment offerings, including stocks, mutual funds and similar
vehicles. The company has operations in 16 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) 484-7815,; Christian Charest,
Associate Editor, Morningstar Canada, (416) 484-7817,

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