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Golden Performance for Canadian Equity Funds in February, Morningstar Canada Data Show

After a less-than-spectacular start to the year in January, Canadian investment funds that focus on domestic equities posted strong returns in February. Moreover, sector-specific funds in three categories that hold predominantly Canadian content also outperformed last month, according to preliminary performance data released today by Morningstar Canada.

Thirty-four of the 43 Morningstar Canada Fund Indices posted gains in February, led by the Morningstar Precious Metals Equity Fund Index with its 6.8% return. “Precious metals stocks were led by the strength of Canadian mining heavyweights Barrick Gold Corp. and Goldcorp Inc., which rose by 6.8% and 9.9%, respectively, for the month,” said Neal Brandon, fund analyst for Morningstar Canada. “The price of gold bullion benefited from the uncertainty of European sovereign debt, as investors looked to precious metals as a safe haven alternative to riskier assets.”

All six Canada-focused equity fund indices were among the top 10 performers for the month, as the benchmark SandP/TSX Composite Index posted a healthy 5% gain. The best in this group was the Morningstar Canadian Equity Fund Index, which ranked second overall with a 4.6% return, while the worst was the ninth-placed Morningstar Canadian Focused Equity Fund Index, up 3.2%. “The positive performance of broader Canadian equities over the month was a return to form buoyed by renewed momentum of the Canadian dollar, rising commodity prices, and the robust performance of financials,” Brandon said.

Funds that specifically target the financial services and commodities sectors were also among the top performers in February. The Morningstar Natural Resources Equity Fund Index gained 3.4%, which was good enough for seventh place, while the Morningstar Financial Services Equity Fund Index came in third with a 4.2% return. “Financial services stocks rose as the market’s expectation for bank earnings found reassurance in early quarterly reporting from CIBC and National Bank,” Brandon said. “Results from Canada’s fifth and sixth largest banks, respectively, pointed to a significant increase in revenue from trading operations and helped set a positive tone for the forthcoming results of the remaining banks.”

Meanwhile, foreign equity funds had mixed results last month. The Morningstar U.S. Equity Fund Index and its small/mid-cap counterpart posted solid gains of 2% and 3.2%, respectively. However, of the nine fund indices that were in the red in February, six were indices that track foreign equity categories. The worst performers among these were International Equity (-1.5%), Japanese Equity (-2.1%) and European Equity (-3.2%).

“Concern over European sovereign-debt issues came to the forefront in February as investors speculated on the implications of Greece’s hefty fiscal deficit and the resolve of the wider European region to offer support. The European common currency also suffered under this cloud of uncertainty, contributing to the losses experienced by Canadian unitholders of funds that hold euro-denominated stocks,” Brandon said.