TORONTO, Feb. 4, 2013—Positive momentum from 2012 continued for investment funds in Canada into the first month of 2013, with strong gains posted in most equity, balanced, and fixed income fund categories in January. Thirty-seven of the 42 Morningstar Canada Fund Indices had positive results for the month, including increases of more than 3% for 13 of the 24 equity fund categories, according to preliminary performance data released today by Morningstar Canada.
Several trends that were observed in the last few months of 2012 continued into the new year. The best-performing fund index for the month of January, as it was for the whole of 2012, was the one that measures the Health Care Equity category with a 7% increase. Meanwhile, at the bottom of the table, the only two equity fund indices to lose ground for the month were once again Natural Resources Equity and Precious Metals Equity, which decreased by 0.1% and 7%, respectively.
“A combination of factors such as macroeconomic uncertainty, improving stock fundamentals, and increasing consumer demand due to an aging population contributed to the outperformance of the health care sector, which is traditionally seen as defensive,” said Morningstar Fund Analyst Joanne Xiao. “Gold prices continued to face downward pressure and dropped more than 11% in the month of January alone, adding to the 11% decline in 2012.”
Another trend that carried over from last year was the dominance of foreign equity funds over their Canadian-focused counterparts. The U.S. stock market had an exceptionally good month in January, with the SandP 500 Index gaining 5.2%; coupled with favourable currency effects, this translated into an average gain of 5.6% for funds in the U.S. Equity category, and 5.8% for the U.S. Small/Mid Cap Equity category. Major European and Asian markets also had a good month, leading to strong increases for the European Equity (4.6%), International Equity (4.6%), Global Equity (4.5%), and Japanese Equity (3.9%) fund indices.
Canadian equities continued to post strong gains in January, with the financial services sector doing particularly well, but overall market performance was once more dragged down by a lethargic resources sector and failed to keep up with overseas markets. As a result, Canadian equity funds produced returns that were good on an absolute basis but lagged other equity categories. The Morningstar Canada Fund Indices that track the Canadian Equity, Canadian Dividend and Income Equity, and Canadian Small/Mid Cap Equity categories increased by 2.5%, 2.7%, and 2.9%, respectively. The Canadian Focused Equity and Canadian Focused Small/Mid Cap Equity categories, which can invest up to 50% in foreign stocks, did better with increases of 3.6% and 3.4%, respectively.
As was the case in December, the three fixed-income categories that target intermediate and long-term bonds were in the red in January. The Morningstar Canadian Fixed Income Fund Index decreased by 0.7% for the month, while Canadian Long Term Fixed Income and Canadian Inflation-Protected Fixed Income decreased by 2.2% and 2.6%, respectively.
“This was the worst month for Canadian Long Term Fixed Income and Canadian Inflation-Protected Fixed Income funds since early 2011. Lower-than-expected inflation numbers released by Statistics Canada had a negative impact on the performance of real-return bond funds. Also, the Bank of Canada's long-term bond yields ticked higher, which caused the DEX Long Term Bond Index to lose 2% for the month,” Xiao said.
For more on January fund performance, go to www.morningstar.ca.
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 www.morningstar.ca next week.
About Morningstar Research Inc. and Morningstar, Inc.
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 individuals, financial advisors, and institutions. Morningstar provides data on more than 385,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 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 registered investment advisor subsidiaries and has approximately US$195 billion in assets under advisement or management as of Sept. 30, 2012. The company has operations in 27 countries.