Fixed-Income Funds Thrive in May, Morningstar Canada Data Show
June 02 2011 - 7:00AM
PR Newswire (Canada)
TORONTO, June 2, 2011 /CNW/ -- TORONTO, June 2, 2011 /CNW/ - Equity
markets turned defensive in May, which led to some lacklustre
results for equity funds in Canada. However, those same factors
contributed to solid performance numbers for fixed-income funds,
according to preliminary performance data released today by
Morningstar Canada. "Disappointing economic news from the United
States dampened expectations that central banks would raise rates
in the imminent future. In Canada, although Bank of Canada Governor
Mark Carney did hint at an eventual increase in rates to curb
inflation, much of the commentary from the central bank has
revolved around ensuring the dollar stays in check. This pushed
yields down, making fixed-income categories among the best
performers for the month," said Morningstar Fund Analyst Salman
Ahmed. Overall, 28 of the 44 Morningstar Canada Fund Indices had
positive returns in May, and most of the top performers were
indices that track either fixed-income or balanced fund categories.
The Morningstar Long Term Fixed Income Fund Index had the best
return among bond fund categories, and was second-best overall,
with a 3% gain, while Global Fixed Income, Canadian Fixed Income,
and Canadian Inflation-Protected Fixed Income all gained 1.3%. The
other two bond fund indices—High Yield Fixed Income and Canadian
Short Term Fixed Income—had returns of 0.6% for the month. Among
equity funds, the fund index that tracks the tiny Health Care
Equity category had the best overall performance with a 4.4% gain,
while the Morningstar Greater China Equity Fund Index—also one of
the smallest categories in the Canadian fund universe—came in third
with a 1.4% gain. The only other equity fund index to gain more
than 1% in May was Real Estate Equity, which was up 1.3%. All of
the major foreign equity markets had negative returns last month,
but most of the Canadian funds that invest there benefited from
favourable currency effects as the Canadian dollar depreciated
against the U.S. dollar, the euro, the UK pound, and the yen, among
others. As a result, many of the diversified foreign equity fund
indices had flat returns for the month including U.S. Equity
(0.2%), Global Equity (-0.2%), European Equity (-0.2%), and
International Equity (-0.7%). The worst-performing foreign equity
fund index was Emerging Markets Equity, which lost 1.2%. For
domestic equity funds, the main story was the disappointing
performance of the natural resources sectors. The S&P/TSX
capped sub-indices that measure the energy and materials sectors
lost 3.2% and 3.4%, respectively, for the month, which dragged down
the broader market benchmarks. As a result, the Morningstar
Canadian Equity Fund Index, whose constituent funds allocate, on
average, more than 46% of their assets to these sectors, lost 1.1%
for the month. Meanwhile, the Morningstar Canadian Small/Mid Cap
Equity Fund Index, with nearly 60% in resources stocks, lost 1.3%.
The best-performing fund index among domestic equity categories
with a 0.4% gain was Canadian Dividend and Income Equity, which has
a much more modest exposure to resources. Not surprisingly, the
worst-performing fund indices for the month were Natural Resources
Equity and Precious Metals Equity, which lost 3.6% and 5.2%,
respectively. "Oil prices were down for much of the month because
of a strengthening of the U.S. dollar and lower expected demand due
to poor economic data. The lower price of oil lessened inflation
expectations, which also pushed down the price of gold for much of
the month. Although these commodities rebounded toward the end of
May, it wasn't enough to offset the losses," Ahmed said. For more
on May 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 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 390,000 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 nearly $140 billion
in assets under advisement and management as of March 31, 2011. The
company has operations in 26 countries. To view this news release
in HTML formatting, please use the following URL:
http://www.newswire.ca/en/releases/archive/June2011/02/c9963.html p
Salman Ahmed, Fund Analyst, Morningstar Canada, (416) 484-7821;
Christian Charest, Editor, Morningstar Canada, (416) 484-7817 /p
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