Resources sector boosts domestic equities

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, reports Morningstar Canada.

Twelve of the 22 Morningstar Canada Fund Indices that measure the performance of equity fund categories increased in August, according to preliminary performance numbers.

Read: Equity funds off to solid start in Q3

For the second consecutive month, the best-performing fund index was the 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, 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,” says Morningstar fund analyst Vishal Mansukhani.

Also a top performer 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 says.

Financial Services Equity was also a top-five performer with a 1.6% increase for the month.

Read: Japanese, U.S. equity funds shine in Q2 2013

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 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 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.

Read: Will energy stocks boost the Canadian market?

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.