Small-Cap Funds Emerge Ahead After Volatile April, Morningstar Canada Data

TORONTO, May 4 /CNW/ - After a relatively smooth, upward ride in March, equity funds had a very volatile month in April that, for many, ended with modest gains. Funds that invest in small and mid-sized companies performed better than average last month, but the clear winners were those that target the precious metals sector, according to preliminary performance data released today by Morningstar Canada.

"April was choppy as markets zigzagged over concerns about Greece's ability to service its debt, and the contagion spread to Spain and Portugal. The yield on Greek government bonds spiked as the country's credit rating was cut to junk status and uncertainty lingered over the terms of a bailout," said Esko Mickels, fund analyst for Morningstar Canada. "As a result, currency markets were wobbly and the euro weakened against major currencies. The Canadian dollar sold off mid-month, but then rebounded sharply as the Bank of Canada began positioning itself to raise interest rates."

Thirty-six of the 43 Morningstar Canada Fund Indices had positive returns in April, though 22 of them gained less than 1%. For the second time in the past three months, the best performer was the Morningstar Precious Metals Equity Fund Index, which posted a 12.2% return. "Government debt and related currency concerns helped boost the price of gold and other commodities," Mickels said.

The three fund indices that track small/mid-cap equity categories posted returns in the top five for the month. The Morningstar U.S. Small/Mid Cap Equity Fund Index was second overall with a 4% gain, while its Canadian and Global counterparts were fourth and fifth with gains of 2.7% and 2.3%, respectively. In third place, the Morningstar Natural Resources Equity Fund Index gained 2.9%.

Among large-cap equity categories, North America was the place to be in April. Canada's S&P/TSX Composite Index gained 1.7% for the month, slightly beating the S&P 500 Index's 1.6% return, when measured in U.S. dollars. And despite the volatility in the exchange rate between the Canadian and U.S. dollars during the month, currency movements mostly cancelled each other out. As a result, the Morningstar U.S. Equity Fund Index and the Morningstar Canadian Equity Fund Index had very similar results, gaining 1.5% and 1.2%, respectively.

The trouble in Greece, combined with a strengthening Canadian dollar that gained 2.1% over the euro, spelled bad news for the Morningstar European Equity Fund Index, which lost 2.1% for the month and ranked second from the bottom. The same issues also hindered funds in the International Equity category, which collectively lost 1.6%, and those in the Global Equity category, which eked out a 0.2% gain thanks to their large North American component. The worst performer among all fund indices was Health Care Equity, down 2.5%.

For more on April 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 in North America, Europe, Australia, and Asia. 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 approximately 350,000 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: Esko Mickels, Fund Analyst, Morningstar Canada, (416) 484-7815; Christian Charest, Associate Editor, Morningstar Canada, (416) 484-7817

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