Losses Keep Mounting for Equity Funds in Third Quarter, Morningstar Canada Data Show
October 04 2011 - 7:00AM
PR Newswire (Canada)
TORONTO, Oct. 4, 2011 /CNW/ - Equity funds in Canada suffered a
fifth consecutive month of overwhelmingly negative returns in
September amid high volatility and bleak economic news. This led to
dismal results for the third quarter of 2011 for all 23 of the
Morningstar Canada Fund Indices that track equity categories, with
16 of them losing more than 10%, according to preliminary
performance data released today by Morningstar Canada. The
worst-performing fund index was the one that measures the Greater
China Equity category; it lost 20.5% during the quarter, with the
bulk of the losses coming in September. "Chinese banks and property
developers have come under significant pressure recently, and this
weighed meaningfully on the funds in this small category.
Regulators are creating a tighter credit environment in the country
amid fears of a rise in bad loans," said Morningstar Fund Analyst
Nick Dedes. The flight from risk has been a recurring theme during
the past several months, and the biggest losers among investment
funds were those that target riskier asset classes. The
second-worst performer in the third quarter was the Morningstar
Natural Resources Equity Fund Index with a 17.3% loss, while
Emerging Markets Equity was third from the bottom with a 16.8%
drop. Moreover, the four fund indices that track small- and mid-cap
equity categories were also among the bottom dwellers with losses
ranging from 13.9% to 15.5%. "It's not surprising to see these more
volatile asset classes rank among the worst performers in a period
where equities appear to move more on the latest headline instead
of individual company fundamentals. Investors have been
particularly spooked by sovereign debt woes out of Europe and are
taking risk off the table," Dedes said. Even gold funds, which had
been one of the few categories to post positive returns so far this
year, suffered significant losses in September as gold prices
plummeted by about 10%. The Morningstar Precious Metals Equity Fund
Index lost 12.1% in September, wiping out its gains from the
previous two months and resulting in a 3.7% loss for the index
during the quarter. Sector-diversified domestic equity funds also
suffered the bulk of their quarterly losses in September after
posting relatively benign losses in August. The Morningstar
Canadian Equity Fund Index lost 8.3% last month—with most of the
damage occurring in the energy and materials sectors—leading to a
12.9% loss for the quarter. The Morningstar Canadian Dividend &
Income Equity Fund Index fared better with a 9% quarterly loss,
while Canadian Focused Equity was down 13.6% for the three-month
period. Results for foreign equity funds were slightly worse than
those of their domestic counterparts. The Morningstar U.S. Equity
Fund Index lost 11.2% in the third quarter, while the indices that
measure the Asia Pacific Equity, Global Equity, International
Equity, and European Equity categories lost 11.6%, 12.2%, 14.8%,
and 16.2%, respectively. Currency effects generally favoured
Canadian investors in these funds, with the Canadian dollar
depreciating against the U.S. dollar, the UK pound, and most Asian
currencies. The best performer among equity fund indices, and one
of only two that posted a gain in September, was Japanese Equity
with a 2.8% gain in September and a 2.6% loss for the quarter.
Currency movements were particularly beneficial here from a
Canadian investor standpoint, as the 11.4% loss of Japan's Nikkei
225 Index for the quarter was largely offset by the yen's 12.8%
appreciation against the loonie. "Despite intervention efforts by
the Japanese government, the yen has rallied strongly against most
major currencies and likely continues to receive safe-haven flows
through this period of economic strain," Dedes said. By contrast,
bond funds had strong returns last quarter as investors, somewhat
predictably, flocked to the perceived safety of the asset class.
"Risk aversion is currently trumping the less-than-compelling low
yields in fixed-income instruments," Dedes said. The best performer
among the 43 Morningstar Canada Fund Indices was Canadian Long Term
Fixed Income with a 9.8% gain, followed by Canadian
Inflation-Protected Fixed Income, Canadian Fixed Income, Global
Fixed Income, and Canadian Short Term Fixed Income with gains of
4.3%, 3.8%, 2.8%, and 1.7%, respectively. For more on third-quarter
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 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. Morningstar Research Inc. CONTACT: Nick
Dedes, Fund Analyst, Morningstar Canada, (416)
484-7823;ChristianCharest, Editor, Morningstar Canada, (416)
484-7817
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