September Bolsters Third-Quarter Performance of Most Funds, Morningstar Data Show

Oct 02, 2012, 07:00 ET from Morningstar Research Inc.

TORONTO, Oct. 2, 2012 /CNW/ - September saw increases across the board for the Morningstar Canada Fund Indices, with positive monthly returns helping some categories achieve strong quarterly performance and leaving only one fund index in negative territory in the third quarter.

"Bold efforts by central banks to bolster global growth have instilled some confidence in equity investors, despite persistent fundamental economic concerns," Morningstar Fund Analyst Nick Dedes said.

The biggest increases in the month among the 42 benchmarks came from some of the most volatile sectors, including the best one-month performance: a return of 11.7% logged by the Precious Metals Equity category. Precious metals funds were also the leaders for the third quarter, as the index rose 19.5% in the past three months, according to preliminary performance numbers today released by Morningstar Canada.

"Longer-term inflationary pressure of major stimulus efforts was a boon for precious metals, which also benefited from a drop in the U.S. dollar," Dedes said, pointing out that gold climbed more than 10% and silver jumped more than 25% in the third quarter.

Natural Resources Equity funds ranked second in the quarter, with the index increasing 11.5%. A one-month surge of 5.6% contributed to the category's quarterly performance.

The performance of these sectors and stocks in general have been aided by the U.S. Federal Reserve's announcement of further asset purchases and its expectation for exceptionally low short-term interest rates through at least 2015, along with the European Central Bank's announcement of an unlimited bond-buying program for distressed government bonds. "These stimulative measures have had a big impact on categories that traditionally exhibit high volatility and, in many cases, are highly levered to prospective economic growth," Dedes said.

On the domestic front, strength in the resources and financial services sectors helped carry the S&P/TSX Composite Index to increases of 3.4% in September and 7% over the last three months. Funds that invest in Canadian stocks posted solid gains in September, with the Morningstar Canadian Small/Mid Cap Equity Index increasing by 7.3% to rank third for the quarter. By comparison, the Canadian Focused Small/Mid Cap and Canadian Equity indices each rose 3% in September alone, making for increases of 6.1% and 5.9%, respectively, in the third quarter.

A similar third-quarter trend took shape in the United States, with solid returns of 2.5% for both the Morningstar U.S. Small/Mid-Cap Equity and the U.S. Equity indices.

Two regional indices were in the top 10 for the third quarter. The Morningstar European Equity Index ranked sixth with a return of 5.3%, while the Morningstar Asia Pacific (excluding Japan) Index increased 3.6% to land in 10th place. The latter index rose 5.7% in September.

September also closed a mostly positive quarter for investors in more geographically diversified overseas funds. The volatile Morningstar Emerging Markets Equity Index rose 4.7% in the month, ending the third quarter with an increase of 2.6%. Also showing solid returns over the last three months, the Morningstar International Equity, Global Equity, and Global Small/Mid Cap Equity indices rose 3.5%, 2.6%, and 1.9% respectively, with those results partly supported by corresponding September returns of 2.7%, 2.1%, and 3.7%, respectively.

After negative returns in July and August, a surge of 6.2% in September boosted the Greater China Equity Index and helped this category of funds eke out a 0.5% return for the quarter.

Despite a positive return of 1.5% in September, the worst performance and the only third-quarter decrease belonged to the Morningstar Japanese Equity Index, which posted a decrease of 6.1% in the period. "Demand for the country's exports has been soft and a strong currency has also been a headwind, Dedes said.

The continuing appeal of safety for investors helped drive positive results across fixed-income categories. The Morningstar Global Fixed Income Index returned 2.2% in the quarter and 1.3% in September alone. The Morningstar Canadian Fixed Income Index, meanwhile, rose 1.2% for the quarter and 0.6% for the month, slightly underperforming the Morningstar Canadian Long-Term Fixed Income Index, which rose 1.7% for the quarter and 0.8% for the month.

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 next week.

About Morningstar

Morningstar Research Inc. (Morningstar Canada) 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 eight 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 more than US$186 billion in assets under advisement or management as of June 30, 2012. The company has operations in 27 countries.

SOURCE Morningstar Research Inc.