The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from CNW Group

Slump Continues for Equity Funds in July, Morningstar Canada Data Show

Wednesday, August 03, 2011

Slump Continues for Equity Funds in July, Morningstar Canada Data Show07:42 EDT Wednesday, August 03, 2011TORONTO, Aug. 3, 2011 /CNW/ - For a third consecutive month, most equity funds in Canada posted negative returns in July, as the debt crisis afflicting Europe and now the United States continued to shake stock markets around the world. Only seven of the 24 Morningstar Canada Fund Indices that track equity categories posted gains for the month, according to preliminary performance data released today by Morningstar Canada.The best-performing fund index was the one that measures the Precious Metals Equity category, which gained 4.6% in July. "Precious metals rebounded strongly last month, as concerns about the U.S. debt ceiling and next moves in the European sovereign debt crisis were top of mind for investors," said Morningstar Fund Analyst Nick Dedes. "The U.S. dollar's depreciation against most major currencies during the month also helped inflate the dollar-denominated price of gold. The sharp swing back for the category following a big drop in June highlights its high level of volatility, particularly when the global economy remains fragile."Also among the top performers were the fund indices that track Asian equity funds. The Morningstar Japanese Equity Fund Index gained 1.6% for the month, as these funds benefited from the yen's sharp increase relative to the Canadian dollar. Also doing well were the Asia Pacific ex-Japan Equity and Asia Pacific Equity indices with gains of 0.9% and 0.2%, respectively.The worst performer among all fund indices in July was Financial Services Equity, which lost 5.3%. "Canadian banks continue to face competitive pressures. We saw declining net interest margins negatively affect earnings in the second quarter, and some analysts are expecting to see some weak spots in the third quarter as well. Meaningful stock price declines were widespread for the major banks in July," Dedes said.All six fund indices that track domestic equity categories were in the red for the month of July. Funds that target smaller-capitalization stocks generally did better than their large-cap counterparts, which were held back by their exposure to the major banks, among other things. The Canadian Small/Mid Cap Equity and Canadian Focused Small/Mid Cap Equity fund indices posted relatively tame losses of 0.04% and 0.8%, respectively, while Canadian Focused Equity, Canadian Equity and Canadian Dividend & Income Equity were down 3%, 3.1% and 3.3%, respectively.Except for those that focus on Asia, all diversified foreign equity categories also posted significant losses for the month. The Morningstar Global Equity Fund Index lost 2.6%, while the indices that measure the International Equity and U.S. Equity categories both lost 3.1%. The worst-performing foreign equity fund index was European Equity, which dropped 4.7%.As was the case in the two previous months of stock market turmoil, fixed-income funds had solid returns in July. All six fixed-income fund indices posted gains during the month, led by the Canadian Inflation-Protected Fixed Income and Canadian Long Term Fixed Income indices, up 4.1% and 3.8%, respectively. "Fixed income is another area where investors tend to flock during periods of uncertainty, and on the whole, growth levels out of most developed market economies haven't been all that encouraging. In Canada, however, we've seen CPI figures climb and Bank of Canada Governor Mark Carney signalled that a short-term rate hike may come sooner than expected. This helped push up real return bonds, a source of inflation protection," Dedes said.For more on July 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 MorningstarMorningstar 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 400,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 5 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services and has more than $180 billion in assets under advisement and management as of June 30, 2011. The company has operations in 26 countries.For further information: Nick Dedes, Fund Analyst, Morningstar Canada, (416) 484-7823; Christian Charest, Editor, Morningstar Canada, (416) 484-7817