Japanese and U.S. Equity Funds Post Big Gains in First-Quarter 2013, Morningstar Canada Data Show

Apr 02, 2013, 07:00 ET from Morningstar Research Inc.

TORONTO, April 2, 2013 /CNW/ - Equity funds in Canada saw positive results for the first quarter of 2013, with strong performances from funds that target U.S. and Japanese markets in particular. Canadian equity funds had positive but middling results compared to their foreign counterparts, according to preliminary performance numbers released today by Morningstar Canada.

The Morningstar Canada Fund Indices that measure the aggregate returns of funds in the Japanese Equity, U.S. Small/Mid Cap Equity, and U.S. Equity categories were among the best performers with increases of 13.3%, 12.5%, and 11.6%, respectively, for the first quarter. All three fund indices were among the leaders in each of the first three months of the year.

"Japanese Equity funds continued to do well despite the weakening of the yen versus the Canadian dollar. The weak yen has helped boost the profitability of Japan's exporters. In addition, the Bank of Japan's renewed commitment to fight deflation and its use of aggressive stimulus have also supported the market rally," said Morningstar Fund Analyst Joanne Xiao. "In the United States, the S&P 500 Index closed the month at an all-time high, as a steady stream of positive economic data and stronger-than-expected corporate earnings continue to support a slow recovery of the U.S. economy."

Among the five domestic equity fund indices, the best performer with a 6.2% increase for the quarter was the Morningstar Canadian Focused Equity Fund Index, whose constituent funds allocate more than 22% of their assets to U.S. equities on average. Funds in the purely domestic Canadian Equity category produced an average increase of 3.7% for the quarter, surpassing the S&P TSX Capped Composite Index by almost 40 basis points after fees.

"Aside from picking the right stocks, many Canadian equity funds outperformed the benchmark thanks to an underweight in basic materials, a sector that has lagged the overall index significantly for much of the last two years. Overweight positions in winning sectors such as consumer discretionary, industrials, and technology also helped fund performance in this category," Xiao said.

The worst-performing fund indices for the quarter were Natural Resources Equity, which decreased by 4.5%, and Precious Metals Equity, which decreased by 17.2%. Both fund indices had negative monthly returns and ranked at or near the bottom in all three months of the first quarter. The only other fund index to end the quarter in the red, Greater China Equity, started with a solid 3.8% increase in January, followed by a flat February, and then the worst monthly performance among all fund indices with a 5.2% decrease in March.

"In contrast to what we saw in Japan, Chinese equities dropped following the government's latest rounds of measures to curb property prices. Real estate investment is such an important part of the Chinese economy that the Chinese government's action sent its market tumbling during the month," Xiao said.

For more on first-quarter 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 416,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 9 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$149 billion in assets under advisement or management as of Dec. 31, 2012. The company has operations in 27 countries.

SOURCE Morningstar Research Inc.