U.S. equity funds outperform as energy drags Canadian funds

Twenty-eight of the 42 Morningstar Canada Fund Indices increased during May 2015, including seven that increased by 2% or more, while three of the Fund Indices that lost ground decreased by more than 2%.

Here are some additional highlights from Morningstar’s May 2015 preliminary performance report.

• Funds that concentrate on the energy and natural resources sectors suffered a setback after sizeable increases in April. The Energy Equity Fund Index posted May’s worst result with a 5.6% decline, while the Natural Resources Equity Fund Index posted May’s third-worst result with a 2.6% decline. Worldwide crude oil prices dropped in May, in large part because of a two-and-a-half year high in OPEC production.

• The decline in energy had a large effect on funds in the Canadian Equity category, where energy represents more than one-fifth of the holdings. The Canadian Equity Fund Index was a poor performer in May, decreasing by 1%. Recent economic data indicates that lower investment in Canada’s oil patch contributed to a 0.6% contraction in the Canadian economy during Q1 2015. Also, the Canadian dollar is down against currencies including the U.S. dollar, the British pound and the Chinese yuan.

• Funds in the U.S. Equity and U.S. Small/Mid Cap Equity categories, which were the worst performers in April, had a very different month in May, posting increases of 3.5% and 4.2%, respectively. The S&P 500 Index of large-capitalization U.S. stocks was up 1.3%, but for Canadian investors the more significant contributor was currency effect. The U.S. dollar rebounded by 2.9% versus its Canadian counterpart. This comes after a 4.4% decline in April, which was its worst monthly result since July 2009. While recent reports indicate the U.S. economy saw its own contraction of 0.7% in the first quarter of 2015, few expect it to continue, with the end of both a tough winter and a labour dispute at West Coast ports.

• The majority of the Fund Indices that track foreign equity categories were up, except for the Emerging Markets Equity Fund Index, which declined by 0.8%. The poor performance of Brazilian stocks contributed to the decline, along with the depreciation of the Brazilian real versus the Canadian dollar.

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