TORONTO, June 4, 2012 /CNW/ - All equity fund categories in Canada ended May with losses, according to preliminary performance numbers today released by Morningstar Canada. All 22 Morningstar Canada Fund Indices that track the aggregate performance of equity fund categories were in the red, and only eight of the total 42 indices constructed by Morningstar posted flat or positive results for the month.
With most balanced funds also in negative territory, the best outcomes showed up in fixed-income categories. "Investors continue to ignore the prospect of rising rates and flock to the safety they perceive in fixed income," Morningstar Fund Analyst Nick Dedes said. "That popularity is driving yields lower and prices higher."
The Morningstar Canadian Long Term Fixed Income and Morningstar Canadian Inflation-Protected Fund Indices led the way with increases of 4.1% and 3.9%, respectively, while the Canadian Fixed Income Index ranked third with a return of 1.7%. Also in the black were Global Fixed Income funds, which rose 0.8%, while the Canadian Short Term Fixed Income Index rounded out the top-five list with a return of 0.5%.
Slight losses of 0.2% and 0.5% by the Real Estate Equity and Health Care Equity Indices, respectively, were enough to make those two the best performers among equity fund categories.
Turbulence was pervasive across equity markets and the high volatility of certain other industry sectors was evident. Natural Resources Equity funds fell 10.2% for the steepest and only double-digit loss among all 42 Morningstar fund indices. That decline reflected a plunge of 14% in the price of Brent crude oil as concerns heightened about weakening economic growth and the slowing demand for fuel.
The Morningstar Precious Metals Equity Index performed only slightly better, declining 8.6% as the second-worst performer in the month. The spot price of gold dropped a steep 6% in May.
The Morningstar Canada European Equity Index fell 7.8%, which was the worst regional equity performance in the month. "There's a plethora of headline news feeding investors' apprehension. The Spanish banking system is under significant pressure, Greeks are heading back to the polls after a failed attempt to form a ruling government, and there are billions of trading losses out of J.P. Morgan, to name a few," Dedes said. "It's not surprising to see capital fleeing riskier assets and, to some extent, we've become accustomed to seeing security prices largely influenced by headlines versus company fundamentals."
Spurred in part by this turbulence, most overseas markets also suffered substantial losses. The Morningstar Japanese and Greater China equity indices decreased 5.7% and 7%, respectively. Similar declines, ranging from 5.7% to nearly 8%, were experienced by the indices that track the more diversified mandates of Global Equity, Emerging Markets, International Equity, Global Small/Mid Cap Equity, and Asia Pacific Equity funds.
The more advanced economies in North America were also not immune to the turmoil. In Canada, where high levels of household debt and high home prices have been singled out as areas for concern, the equity market fell more steeply than in the United States. The index that tracks the Canadian Equity Index fell 6%, compared with a decline of 4% for the Morningstar U.S. Equity Index.
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 more than 380,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 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 US$190 billion in assets under advisement or management as of March 31, 2012. The company has operations in 27 countries.
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 data will be published on www.morningstar.ca next week.