Equity Funds See Solid Start in Third Quarter, Morningstar Canada Data Show

TORONTO, Aug. 2, 2013 /CNW/ - Most equity mutual funds had a solid start in the third quarter of 2013 in Canada. Of the 22 Morningstar Canada Fund Indices that measure the performance of equity categories, 17 increased in July, according to preliminary performance numbers today released by Morningstar Research Inc. (Morningstar Canada), a subsidiary of independent investment research provider Morningstar, Inc.

Positive performances by U.S. and most global equity markets were largely driven by the comments of U.S. policymakers; in particular, the Federal Reserve Board's assertion about its plan for the foreseeable future. Chairman Ben Bernanke's statement, "tapering is not tightening," —that interest rates are expected to stay low even as the Fed curbs its bond-buying program-was key to easing market fears.

"The plan to maintain an accommodative policy was supported by similar messages by central banks around the world," Morningstar Fund Analyst Achilleas Taxildaris said.

The best regional results were for the Morningstar Canada European Equity Fund Index, which increased 6.6%, and the U.S. Small/Mid Cap Equity Fund Index, with an increase of 4.7%. By comparison, with its broader focus, the U.S. Equity Fund Index was up 3.4% for the month. The geographically diversified Global Equity and North American Equity indices also fared well, with increases of 2.9% and 2.6%, respectively.

Among the other top-performing categories, the Morningstar Canada Canadian Small/Mid Cap Equity Index was up 3.9%, while the Canadian Equity Fund Index increased 3.1%. Canadian investors benefited from an appreciating Canadian dollar and higher energy and commodity prices. "Concerns for the domestic economy are easing, with a soft landing for the housing market and expectations that Canada will track the improving U.S. economy over the long term," Taxildaris said.

Slightly more positive results came from the Canadian Focused Small/Mid Cap Equity, Canadian Focused Equity, and International Equity Fund Indices, with each rising 3.3% for the month. Funds in the "Canadian Focused" categories must invest at least 50% and no more than 90% of their equity holdings in securities domiciled in Canada.

In a sharp reversal from June's results, funds that focus on precious metals equities posted the biggest increases overall. The Precious Metals Equity Fund Index had an aggregate increase of 9.6%. "Gold prices rebounded this month because of renewed expectations for low rates," Taxildaris said.

While precious metals equity funds significantly outpaced funds in all other categories, it was also a stellar month for several other sector-specific funds. The Natural Resources Fund Index increased 3.7% in the month. The indices for Health Care Equity funds and Financial Services Equity funds, meanwhile, increased 6.6% and 4.2%, respectively.

Results were mixed for funds that invest in Asia. While the Morningstar Canada Greater China Equity Fund Index increased 2.1% amid concerns about China's slowing economy, the Asia Pacific ex Japan and Asia Pacific Equity indices had slightly negative results of 0.8% and 1.1%, respectively.

Japanese equities also slumped in July, in stark contrast to their robust performance one month earlier when the Japanese Equity index led all other Morningstar fund indices. "Monetary intervention has resulted in a much more volatile Japanese yen, which is tracking the ups and downs of world markets," Taxildaris said. "The recent appreciation of the yen, combined with a weakening U.S. dollar and mixed Japanese corporate earnings results, contributed to a late-month plunge for Japanese markets." The Japan category ended the month with a slight decline of 0.7% despite increases in the first three weeks of July.

In a month that saw just seven fund indices in negative territory, the worst result was a 2% decrease for the Morningstar Emerging Markets Equity Fund Index.

For more about July 2013 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 Research Inc. and Morningstar, Inc.
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 433,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 10 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has approximately US$166 billion in assets under advisement or management as of June 30, 2013. The company has operations in 27 countries.

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SOURCE: Morningstar Research Inc.