Anum Siddiqui: For Morningstar.ca, I'm Anum Siddiqui and this is your August 2016 fund performance report.
This month we're discussing Canadian equities. In the month of August, the S&P/TSX Composite returned 0.3%, while on a year-to-date basis, it posted a 14.4% return. The Canadian equity market has seen improvement in 2016, largely due to a rebound in commodities. Within the materials sector, gold has done considerably well over the year-to-date; however, it did post a loss during the month of August. Furthermore, within the energy sector, the oil and gas industry has also been a significant contributor after its large losses in 2015. Aside from commodities, the financial sector has also fared well due to the Canadian banks. Despite concerns regarding energy loan losses, the banking industry has posted positive returns and had its strongest month in August after several banks reported better than expected earnings results.
On average, active managers have lagged the benchmark over the year-to-date. The Morningstar Canadian Equity category average return was 11.5% year-to-date, which lagged the TSX by 2.9%. This underperformance isn't entirely surprising considering that, on average, the category has been underweight the top-performing sectors such as energy, materials and financials.
One fund we cover is the Silver-rated Franklin Bissett Canadian Equity fund. Over the month of August, the fund outperformed the category average by 2.3% and by 3.9% since the start of the year. In 2015, the fund's stock selection within the energy sector was its largest detractor from returns. But during the drop in oil prices, the fund mostly held on to its energy names and even took advantage of the downturn by adding to some of its positions in the energy sector. Such action has proved to be beneficial in 2016 as the fund's outperformance on a year-to-date basis has been due to stock selection within the energy sector. Individual names such as Suncor Energy and NuVista Energy, which were amongst the top individual detractors in 2015, are now amongst the strategy's leading individual contributors in 2016. Lastly, in addition to Bissett's energy holdings, the fund has also benefited from being absent from the healthcare sector, which has been the only Canadian equity sector posting negative returns on a year-to-date basis.
Another Canadian equity fund we cover is the Gold-rated Manulife Canadian Investment Class. While the fund's long-term track record remains impressive, the strategy did underperform the category by 1.8% in August and by 2.6% on a year-to-date basis. The fund's underperformance is attributed to the underweight to the materials sector. In particular, the fund's absence from gold has had a negative impact on returns thus far in 2016. Stock selection within the materials sector has also hurt performance, with names such as CCL Industries and Potash Corp. of Saskatchewan amongst the fund's leading detractors. Despite its underperformance, Manulife has also benefited from its absence from the Canadian healthcare sector.
Overall, Bissett and Manulife have remained consistent with their investment approaches and despite their varying styles and short-term performance results, both Canadian equity strategies have strong long-term performance track records and on a forward-looking basis, the Morningstar analyst team continues to have conviction in both funds.
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