Mid-year fund performance update

Canadian Equity funds are weighted down by their energy exposure.

Christian Charest 6 July, 2017 | 5:00PM
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Christian Charest: Canadian equity funds posted spectacular returns in 2016 thanks to the red-hot natural resources sectors of energy and materials. Unfortunately for investors, this hasn't carried over into the first half of 2017.

While the materials sector, which includes gold producers, enjoyed a nice run in the first three months and climbed more than 6%, it subsequently gave up those gains, and as of June 30, it's slightly in the red for the year to date.

But the bigger story has been the energy sector, which in Canada really means oil. The price of oil reached a low of just under US$30 in January of 2016, and climbed steadily to reach more than US$54 by December, which accounted for a large part of the Canadian market's outperformance in 2016. Since then, however, it has trended down and now sits at around US$45.30.

Canadian funds that target the energy sector have been the worst performers so far this year, with an aggregate return of -20.6%, as measured by the Morningstar Canada Fund Indices, while funds in the Natural Resources Equity category have been second-worst with a -12.6% return.

Since resources make up a large portion of the Canadian stock market, diversified Canadian equity funds haven't performed particularly well in the first half of 2017. But it's not all bad, since the other large piece of the Canadian market puzzle, the financial services sector, has put up some decent numbers, as have a lot of the smaller sectors. Still, the Morningstar Canadian Equity Fund Index is up a mere 0.6% over the past six months, making it the worst performer among diversified equity fund categories.

Note that this number represents a weighted average of all funds in the category. How your actual fund really did will depend largely on how much it deviated from the sector weights of the index, and of course, how much it allocates to the resource sectors.

For Morningstar, I'm Christian Charest

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