Equity Funds Take a Beating in 2011, Morningstar Canada Data Show
January 04 2012 - 7:00AM
PR Newswire (Canada)
TORONTO, Jan. 4, 2012 /CNW/ - After two years of solid gains in
2009 and 2010, equity funds in Canada had mostly negative returns
in 2011 amid roller-coaster-like volatility. Among the 22
Morningstar Canada Fund Indices that measure the aggregate
performance of equity fund categories, only the ones that track the
Real Estate Equity and Health Care Equity categories ended the year
in positive territory, with increases of 12.1% and 7.1%,
respectively, while most other fund categories posted double-digit
declines. Also, fixed income funds posted impressive rises,
according to preliminary performance numbers released today by
Morningstar Canada. "Funds in most equity categories struggled
under the uncertainty that accompanied natural disasters, the
European debt crisis, and continued turmoil in the Middle East,"
said Morningstar Fund Analyst Adam Fisch. Hardest hit by this
uncertainty were Asian markets, whose fast-growing economies depend
to a large extent on sustained growth from the developed world. The
Morningstar Greater China Equity Fund Index suffered a 21% decline
for the year, while the fund indices that track the Emerging
Markets Equity, Asia Pacific Equity, and Asia Pacific ex-Japan
Equity categories dropped 18.7%, 16.5%, and 15.1%, respectively.
Market losses in the region were actually more severe, but Canadian
fund investors benefited from currency effects that saw the
Canadian dollar lose ground against the Hong Kong dollar and the
Chinese renminbi. The worst performer among all Morningstar Canada
Fund Indices was the one that tracks the Precious Metals Equity
category, which declined 24.5% for the year. "Despite gold having
another solid year, up more than 10%, precious metals stocks failed
to move in step as investors displayed a lack of appetite for
risk," Fisch said. Lack of confidence in global markets also led to
declining commodity prices, which hurt Canadian equity funds
particularly hard considering the significant weight that resources
occupy in Canadian portfolios. The energy sector in Canada lost
14.8% in 2011, while the materials sector lost 21.2%; these two
sectors together account for roughly half of the domestic stock
market. As a result, the Morningstar Canadian Equity Fund Index
posted a decline of 10.4%, while the Morningstar Canadian Small/Mid
Cap Equity Fund Index dropped 10.2%. The best-performing domestic
equity fund category was Canadian Dividend & Income Equity,
which declined just 1.1% owing to a much smaller exposure to
resources by the category's constituent funds. Despite a constant
barrage of negativity throughout the year, the U.S. stock market
proved resilient and benefited from the flight to quality that hurt
emerging markets funds, signalling that when the going gets tough,
many investors still consider the United States as a safe haven.
The S&P 500 Index (measured in U.S. dollars) eventually closed
out the year with a modest positive increase of 2.1%. For Canadians
who hold funds in the U.S. Equity category, this translated into a
decline of 0.8% after incorporating currency effects and fund fees.
As is often the case when equity markets falter, fixed income funds
benefited from their status as safe harbours and posted strong
gains for the year. The Morningstar Canadian Long Term Fixed Income
Fund Index had the biggest increase among all fund indices with
17.3%, while Canadian Inflation-Protected Fixed Income was second
with 14.9%. The broader Canadian Fixed Income category rose 7.4%
for the year. Meanwhile, the 11 fund indices that track balanced or
target-date portfolio categories had varying performance that
depended greatly on the proportion they allocated to bonds versus
equities. Performance ranged from a 4.2% rise for the 2015 Target
Date Portfolio fund index, which has constituent funds that hold
mostly bonds and cash, to a 6.7% decline for Tactical Balanced. For
more on 2011 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 products and services for individuals, financial advisors, and
institutions. Morningstar provides data on approximately 330,000
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 $167 billion in assets under advisement and
management as of Sept. 30, 2011. The company has operations in 26
countries. Morningstar Research Inc. CONTACT: Adam Fisch, Fund
Analyst, Morningstar Canada, (416) 484-7815;ChristianCharest,
Editor, Morningstar Canada, (416) 484-7817
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