Mutual funds bounce back in October: Morningstar

Thirty-nine of the 42 Morningstar Canada Fund Indices increased during October, including 19 indices that increased by 3% or more.

Here are some highlights from Morningstar’s October 2015 report.

• Funds that focus on energy and natural resources equities were the best performers. The Morningstar Energy Equity Fund Index, which dropped 19.1% in the third quarter, increased by 6.9% last month, while the Morningstar Natural Resources Equity Fund Index increased by 6.5% in October, after falling by 21.1% in the previous quarter.

• Funds in the Greater China Equity category recouped some of their previous losses with an aggregate gain of 6.2%. The Shanghai Composite Index was up 10.8%, while the Hang Seng Index was up 8.6%. But market gains were partly offset by the Canadian dollar’s appreciation of 1.7% and 2.4% against the Chinese renminbi and the Hong Kong dollar, respectively.

• The only fund indices to post negative results were Canadian Fixed Income, Canadian Long Term Fixed Income, and Canadian Inflation-Protected Fixed Income, with decreases of 0.3%, 0.7%, and 1.6%, respectively. The best-performing fixed-income fund index was the one that tracks the Preferred Share Fixed Income category with a 5.6% increase, while the Morningstar High Yield Fixed Income Fund Index was up 1.7% for the month.

• The U.S Equity category—one of the few bright spots in the third quarter—offered another solid performance, with the category’s fund index increasing by 5.7% for the month. Currency effects also impacted these funds, as the loonie appreciated by 2.4% against the U.S. dollar, mitigating the S&P 500 Index’s 8.4% increase for the month.

• Among sector-diversified equity fund categories, the fund indices that track International Equity and Global Equity funds were up 5.1% and 4.4%, respectively, while the Asia Pacific ex-Japan Equity and Asia Pacific Equity fund indices both increased by 3.9%. The Morningstar European Equity Fund Index increased by 3.1% for the month, which may be considered disappointing because Germany’s DAX Index and France’s CAC40 Index were up 12.3% and 9.9%, respectively. The euro’s 3.4% depreciation against the Canadian dollar would have negatively affected European Equity funds that do not hedge their currency exposure.

• While the three largest stock sectors in Canada displayed exceptional performance last month—the S&P/TSX capped indices for the energy, basic materials, and financial services sectors were up 7.7%, 7.3%, and 3.9%, respectively—diversified Canadian equity funds were relatively lacklustre with a 2.3% average return, reflecting the S&P/TSX Composite Index’s 2.0% increase. The fund index and market benchmark were both hurt by the downfall of Valeant Pharmaceuticals Intl (VRX/TSX), a widely held stock that represented 4.6% of the composite index at the start of the month, but has since lost nearly half its value.

Staff

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