Resources Sink Canadian Equity Funds in November, while Asia and Europe Remain Strong, Morningstar Canada Data Show

TORONTO, Dec. 4, 2012 /CNW/ - Equity funds in Canada focused on domestic equities posted negative returns on average in November, dragged by a struggling natural resources sector. Meanwhile, foreign equity funds, particularly those investing in Asia and Europe, had another month of positive results. Overall, 32 of the 42 Morningstar Canada Fund Indices showed increases in November, including 16 of the 24 indices that measure the performance of equity fund categories, according to preliminary numbers released today by Morningstar Canada.

The best-performing fund index for the month was the one that tracks the Financial Services Equity category, which increased by 2.2%. "This relatively small fund category hinges heavily on the performance of the big Canadian banks, which rose in the second half of November on expectations of positive earnings results. RBC announced its results toward the end of the month, while the others will report in the coming weeks," said Morningstar Fund Analyst Adam Fisch.

At the other end of the performance spectrum were the Natural Resources Equity and Precious Metals Equity categories, whose representative fund indices decreased by 4.3% and 9.2%, respectively. "In the days following the U.S. election, renewed fears about the so-called fiscal cliff led to a drop in the markets, from which more volatile sectors like precious metals and natural resources are yet to recover. Precious metals funds were also hurt by some company-specific news within the gold sector; Barrick Gold revised its guidance toward the low end of expectations, while IAMGOLD results missed analysts' expectations," Fisch said.

Diversified Canadian equity funds benefited from the strength of the financial services sector, which accounts for 31% of the S&P/TSX Composite Index, but the poor showing by the energy and materials sectors—the main components of natural resources funds—resulted in decreases for all five of the broader domestic equity fund indices. The Morningstar Canadian Dividend & Income Equity Fund Index, whose constituent funds are the least reliant on resources and typically contain generous helpings of financials, was the best performer in that group with a 0.1% decrease for the month. The Morningstar Canadian Focused Equity Fund Index, with its higher exposure to U.S. equities, also did relatively well with a 0.2% decrease, while the purely domestic Morningstar Canadian Equity Fund Index was down 1%. The fund indices that track the Canadian Focused Small/Mid Cap Equity and Canadian Small/Mid Cap Equity categories, whose funds tend to be tilted toward resources, were down 1.2% and 2%, respectively, for the month.

Foreign equity funds performed much better than their Canadian counterparts in November, reflecting solid results in the Asian and European stock markets combined with muted currency effects. The Morningstar Asia Pacific ex-Japan Equity Fund Index increased by 1.8%, while Japanese Equity and European Equity were both up 1.6%, and International Equity and Asia Pacific Equity both posted increases of 1.5%. "European stocks were buoyed by Germany's approval of Greece's latest rescue deal, which provided some assurance for investors," Fisch said.

For more on November 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 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 more than 385,000 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 through its registered investment advisor subsidiaries and has approximately US$195 billion in assets under advisement or management as of Sept. 30, 2012. The company has operations in 27 countries.

SOURCE: Morningstar Research Inc.