Fri, 04/07/2014 - 12:09
The performance story for equity funds in Canada in the second quarter of 2014 was very similar to that of the first quarter, with most categories showing positive results and natural resources funds leading the way.
Eighteen of the 21 Morningstar Canada Fund Indices that measure the aggregate returns of equity funds were up during the quarter, 11 of which increased by three per cent or more.
Fixed-income funds also continued to post strong gains during the second quarter.
The Morningstar Canada Fund Index that tracks funds in the energy equity category was the best performer in the second quarter with an increase of 13.7 per cent, and it was third-best performing index for the month of June with a 6.3 per cent increase. The Morningstar Natural Resources Equity Fund Index, whose constituent funds combine energy and basic materials stocks, including precious metals, was the third-best performer for the quarter with a 10.6 per cent increase, the majority of which occurred in June.
"Fund returns in these two categories benefited from oil and gas stocks that rose with escalating oil prices, as the current conflict in Iraq sent oil prices higher in June in light of uncertainty surrounding the country's oil supply. Iraq has become an important oil producer over the past few years, pumping more than 3 million barrels each day," says Morningstar manager research analyst Vishal Mansukhani.
Precious metals equity was the second-best performing fund category in Canada with a 12.1 per cent increase in the second quarter of 2014, thanks to its chart-topping 18.9 per cent increase in June.
"Gold stocks and stocks that are positively correlated to the price of gold were helped by geopolitical tensions in Ukraine and Iraq, which continued to spur demand for the metal as a safe haven for investors' capital," Mansukhani says.
The five domestic equity fund indices were all among the top 10 performers for the quarter, having posted positive results for three consecutive months in most cases. The purely domestic Canadian small/mid cap equity and Canadian equity categories were up 6.2 per cent and 5.8 per cent, respectively, while the Canadian focused small/mid cap equity and Canadian focused equity categories, which can allocate up to 49 per cent of their holdings in foreign stocks, increased by 4.7 per cent and 3.8 per cent, respectively. The Morningstar Canadian Dividend & Income Equity Fund Index was up five per cent for the quarter.
Foreign equity funds were mostly positive but their returns on average were less than those of funds that focus on resources-rich Canada. Notably, the Morningstar Emerging Markets Equity Fund Index increased 3.2 per cent for the quarter; Asia Pacific ex-Japan Equity was up 2.3 per cent; and US Equity increased by 1.5 per cent. These returns were hampered by currency effects, as the Canadian dollar appreciated against most major currencies during this period.
The worst-performing fund indices--and the only ones in the red for the quarter--were Greater China Equity and US Small/Mid Cap Equity, with decreases of 0.3 per cent each, and European Equity, down 1.8 per cent. European Equity was also the worst performer for the month of June with a 1.5 per cent decrease.
"European stocks fell in June after reports and economic indicators pointed toward a slowdown in Eurozone business activity, as well as a decline in UK real estate stocks in anticipation of a change in the country's mortgage rules," Mansukhani says.
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