Surging Natural Resources Push Domestic Equity Funds Forward in August, Morningstar Canada Data Show

Sep 04, 2013, 07:00 ET from Morningstar Research Inc.

TORONTO, Sept. 4, 2013 /CNW/ - Mutual funds in Canada that invest in domestic equities posted gains in August, while those that target foreign markets saw generally flat or negative performance. Twelve of the 22 Morningstar Canada Fund Indices that measure the performance of equity fund categories increased in August, according to preliminary performance numbers today released by Morningstar Research Inc. (Morningstar Canada), a subsidiary of independent investment research provider Morningstar, Inc.

For the second consecutive month, the best-performing fund index was Morningstar Precious Metals Equity, which increased by 12.1% in August. This followed its 9.6% increase in July as the gold rally continued, with low prices boosting demand for jewellery, bars, and coins in Asia. Despite these two solid months of performance, precious metals funds are still deep in negative territory for the year to date after a 46% decline in the first six months of 2013.

"The Precious Metals Equity category is sensitive to actions by central banks; any reduction in stimulus would have a negative impact on the price of gold because investors use the metal to hedge against inflationary risk arising from the stimulus," Morningstar Fund Analyst Vishal Mansukhani said. "Negative U.S. economic data reports would positively impact this category, as it would reduce the likelihood of central banks reducing stimulus."

Also among the top performers was the Morningstar Natural Resources Equity Fund Index with a 3.7% increase. "This is an asset class that can be significantly impacted by geopolitical happenings around the world. Oil prices hit a six-month high because of the possibility of western countries' involvement in the Syrian conflict. Though Syria is not a major oil exporter, prices are affected by concerns that violence may spread to larger oil exporters and possibly disrupt transport routes," Mansukhani said.

A third sector-specific fund index, Financial Services Equity, was also a top-five performer with a 1.6% increase for the month. With financials and natural resources (including gold) making up the bulk of the Canadian equity market, it is not surprising that diversified domestic equity funds also did well in August. The Morningstar Canadian Equity Fund Index increased by 1.2%, while the Morningstar Canadian Small/Mid Cap Equity Fund Index increased by 1%.

For most foreign equity funds, market declines in the United States and many European and Asian countries were mitigated by the depreciation of the Canadian dollar against many of the world's currencies in August. As a result, the European Equity and International Equity fund indices posted modest increases of 0.4% and 0.2%, respectively, while the Global Equity, U.S. Equity, and Asia Pacific Equity fund indices decreased by 0.1%, 0.7%, and 0.9%, respectively.

One notable exception was the Morningstar Greater China Equity Fund Index, which was the second-best performer overall with a 4.1% increase, owing to a strong gain in the Shanghai Composite Index as well as favourable currency effects. "The rise in Chinese stocks was led by commodity producers and financial services companies amid optimism about the Chinese economy, which is stabilizing after two quarters of slowdown," Mansukhani said.

The worst-performing fund indices for the month were Emerging Markets Equity, Japanese Equity, and Real Estate Equity with decreases of 1.6%, 2.1%, and 3.3%, respectively.

For more about August 2013 fund performance, go to

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 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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