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All Fund Categories Up in August, With U.S. Equities in the Lead, Morningstar Canada Data Show

All 41 of the Morningstar Canada Fund Indices, which measure the aggregate returns of funds in various standard categories, had positive results during the month of August, with North American equity funds performing particularly well. Eleven of the 21 equity-focused fund indices increased by 2% or more, while six of the seven fixed-income fund indices increased by less than 1%, according to preliminary performance numbers today released by Morningstar Canada.

The best performer among all Morningstar Canada Fund Indices was the one that tracks the U.S. Small/Mid Cap Equity category, which increased by 4.4%. Tied for second place were the U.S. Equity and Canadian Focused Small/Mid Cap Equity fund indices, each with a 3.7% increase. The sector-specific Energy Equity fund index increased by 3.1%, while the North American Equity fund index rounded out the top five performers with a 2.6% increase. Currency movements between the Canadian and U.S. dollars had a minimal impact on fund performance last month.

“North American economies have been improving in during the last few months,” Morningstar Manager Analyst Achilleas Taxildaris said. “After a slow first quarter affected by a harsh winter, second-quarter growth numbers for Canada and the United States, which were announced in August, both came in above expectations, reaffirming forecasts for 3% annual growth. Strong corporate earnings numbers, also buoyed by an improving economy, helped to scare the bear away for now.”

The energy sector was the chief driver for domestic equity funds, as the other two main sectors of the Canadian economy—financial services and basic materials—were mostly flat during the month. The Morningstar Canadian Focused Equity Fund Index posted an increase of 2.4%, while the fund indices that track the Canadian Small/Mid Cap Equity and Canadian Dividend and Income Equity categories were both up 2.3%. The more broadly diversified Canadian Equity fund index increased by 1.7%.

Among funds that focus on other regions, those that invest in emerging-markets equities had a good month with an average gain of 2.5%, owing in part to a nearly 10% rise by Brazil’s Bovespa Index. However, funds in the Asia Pacific Equity, Asia Pacific ex-Japan Equity, and Greater China Equity categories had more modest increases of 0.8%, 0.7%, and 0.1%, respectively. The worst-performing equity fund index was European Equity, which eked out a 0.1% increase.

“Economic numbers in Europe were weak, with the fear of deflation growing again, as the major economies either showed anemic growth or contracted. This hit European stocks hard at the beginning of the month, and it was only by the end of August that they recovered following remarks from the European Central Bank about a possible quantitative easing program,” Taxildaris said.

Against expectations, bond funds continued to deliver positive results in August. The best-performing category was Canadian Long-Term Fixed Income with a 2.3% increase, while the High Yield Fixed Income and Canadian Fixed Income fund indices were both up 0.9%.

“Equity markets around the world entered the month on a pullback that started in late July, affected by headlines regarding the geopolitical turmoil in Eastern Europe and the Middle East. The flight to safety helped bonds and led to record-low yields for longer-term government issues. Several professional money managers were not expecting yields to be this low past the middle of the year, instead anticipating a slow rise in rates as the Global economy improves,” Taxildaris said.

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.

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 individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 473,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 12 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 investment advisory subsidiaries and had approximately US$169 billion in assets under advisement or management as of June 30, 2014. The company has operations in 27 countries.