Christian Charest: For Morningstar I am Christian Charest. Welcome to our monthly round up of fund performance in Canada. I am here with analyst Achilleas Taxildaris to talk about how the various fund categories performed in November.
Achilleas if we only looked at the month end numbers we’d think this was a pretty good month. Most of the equity, fixed income and balanced categories were in positive territory for the month. Several of them actually gained more than 2%, but there is a bit more going on. Let's start with two of the top performing fund indices: European equity and U.S. equity. They both had similar returns of 3.7% and 3.5% for the month of November, but the situation for those two asset classes is very different. Let's start with U.S. equities.
Achilleas Taxildaris: Yes, you are totally right. The situation is different and it's stemming mainly from the economies themselves. In the U.S. November started really strong, given the positive reaction of the wide spread Republican victories in the mid-term elections. The momentum carried on throughout November as economic news came out, such as a solid jobs report and very strong Q3 growth numbers for the U.S. economy.
At the opposite end of the spectrum in Europe and other developed economies around the globe -- economies have been struggling and even contracting and deflation fears are still there. The central banks had to step up again and provide more support to economies by lowering rates. This of course helped the equity markets in these areas, in these regions, while it hurt their currencies.
Charest: Those interventions also gave a boost to the fixed-income categories and once again long-term fixed income was one of the top performing categories for the month. Now switching over to a different topic, one of the biggest stories for the month of November was the drop in the price of oil.
Now that actually started in October and it's been wreaking havoc on funds in the energy equity and natural resources equity categories, which were again the bottom performers in November. Also to a lesser extent the more broadly diversified Canadian equity category. What happened with oil again this month?
Taxildaris: Well as you mentioned oil prices have been coming down in the last couple of months. This month there were expectations that OPEC would maintain the current production, (causing) prices of oil to retract (modestly), but after the decision came down that they will (indeed) maintain current levels – oil prices fell sharply. At the same time U.S. production, oil production, is at record highs and as demand is softening globally due to weakening economies that causes oil prices to fall.
Charest: Now the drop in oil prices was one of the factors, not the only one, but one of the factors in what was eventually the best performing fund index for the month, which was precious metals equity. It gained 5.9% in November. The price of gold was again very volatile last month.
Taxildaris: Exactly. Gold prices started rebounding at the beginning of the month and maintained positive momentum for most of the month. But then during the last week and given the concerns around oil prices–as oil prices fell sharply it affected gold prices as well. The reasoning is that inflation fears were even more tame given the lower oil prices and gold tends to be inflation hedged for most people and that caused gold prices to retract at the end of the month. However, it gained a lot throughout the month to still finish in a positive territory.
Charest: Thank you Achilleas. And for more on Morningstar survey of fund performance for the month of November, including a full table of the performance of all 41 of Morningstar Canada's fund indices please click on the link right below the video player. And check back with us regularly for more news and updates.
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