Equity Funds in the Red for Second Quarter Despite June Rally, Morningstar Canada Data Show

Jul 04, 2012, 07:00 ET from Morningstar Research Inc.

TORONTO, July 4, 2012 /CNW/ - Despite posting positive results in June, most equity and balanced funds in Canada were not able to overcome their losses suffered in the previous two months and ended the second quarter of 2012 in negative territory, according to preliminary performance numbers released today by Morningstar Canada. Among the 22 Morningstar Canada Fund Indices that measure the aggregate performance of equity fund categories, only two managed to stay positive last month. Among balanced funds, the target-date portfolio categories posted slight increases, while all other balanced categories were in the red.

Within the diversified equity categories, funds that invest in Canada typically had more difficulty than their foreign counterparts in the second quarter, due in large part to significant losses in the resources sectors. The Morningstar Canadian Equity Fund Index and the Morningstar Canadian Focused Equity Fund Index decreased by 5.4% and 5.3%, respectively, for the quarter, despite solid showings in June. The indices that track the Canadian Small/Mid Cap Equity and Canadian Focused Small/Mid Cap Equity categories both lost ground in each of the past three months and showed decreases of 8.3% and 7.6%, respectively, for the quarter, ranking near the bottom among all indices. The only fund categories that did worse were those that focus on the resources and precious metals sectors; the Morningstar Natural Resources Equity Fund Index decreased by 15.7% for the quarter, while the Morningstar Precious Metals Equity Fund Index decreased by 16.9%.

The only two equity fund indices that advanced in the second quarter were also sector-specific: the Morningstar Real Estate Equity Fund Index increased by 5.5% and the Morningstar Health Care Fund Index was up 5.1%.

Equity funds, particularly those that invest outside Canada, posted solid results in June with Europe leading the way. "The month of June saw a number of frightening signs for the market, with a disappointing U.S. jobs report on the first of the month, Europe in turmoil, and Moody's downgrading a number of global banks. However, on the last trading day of the month, global markets rallied on news that eurozone leaders came to an agreement to bail out troubled banks," said Morningstar Fund Analyst Adam Fisch. As a result, the Morningstar European Equity Fund Index increased by 5.1% in June, while the indices that track the Japanese Equity, International Equity, and Global Equity categories increased by 4.5%, 4.3%, and 3.2% for the month, respectively. Unfortunately for investors, all of these categories decreased by more than 5% for the quarter.

Meanwhile, fixed income funds enjoyed gains for the quarter as investors once again sought safe havens. All six of the fund indices that track bond categories saw increases during the quarter, ranging from 3.9% for the Morningstar Canadian Long Term Fixed Income Fund Index to 0.6% for the Morningstar Canadian Short Term Fixed Income Fund Index. Among balanced and portfolio categories, the best performer with a 0.3% increase was the Morningstar 2020 Target Date Portfolio Fund Index, whose constituent funds consist mainly of fixed-income assets. The worst performer was the Morningstar Global Equity Balanced Fund Index, down 3.4% over the past three months.

For more on second quarter fund performance, go to www.morningstar.ca.

Morningstar Canada's preliminary fund performance figures are based on the 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 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, 2011. The company has operations in 27 countries.

SOURCE Morningstar Research Inc.