Energy recovery continues in June; Canadian equity funds lead in Q2

Asian and emerging markets equity funds were the quarter's worst performers.

Christian Charest 4 July, 2018 | 5:00PM
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The rally in energy stocks that began in March produced a fourth consecutive month of strong performance, with the S&P/TSX Capped Energy Index gaining 2.5% in June. Compounded with the index's 1.6% gain in May and its 12.3% surge in April, the energy sector produced a 16.9% total return in the second quarter of 2018. Besides fueling funds in the Energy Equity and Natural Resources Equity categories, which were the best performers overall with gains of 14.1% and 10.1% respectively for the quarter, the sector was the main contributor to the strong showing by diversified Canadian stock funds.

The Morningstar Canadian Equity Fund Index was the third-best performer in the second quarter among the 47 Morningstar Canada Fund Indices, which measure the aggregate returns of funds in various standard categories. It gained 6.2%, reflecting increases of 1.6% in April, 2.8% in May and 1.6% in June, according to preliminary performance data released today by Morningstar Canada.

Funds that invest in U.S. stocks were also among the best performers in the second quarter. The Morningstar U.S. Small/Mid Cap Equity Fund Index gained 5.6% while the fund index that tracks the larger-cap U.S. Equity category gained 4.4%. The S&P 500 Index had a total return of 3.4% for the three-month period, but Canadian investors also benefited from a 2.1% appreciation of the U.S. dollar versus its Canadian counterpart.

Asian equity funds had mediocre results in April and May but saw a severe downturn in June, ending up at the bottom of the performance rankings for the quarter. The Morningstar Greater China Equity Fund Index, which has had a rough start to the year but had managed to gain 3.4% in May, was once again the worst performer in June with a 3.8% loss, leading to a 1.1% decrease for the quarter. Funds that invest in the broader Asian region fared even worse, with the fund indices that track the Asia Pacific Equity and Asia Pacific ex-Japan Equity categories losing 1.7% and 3.2%, respectively.

The worst-performing fund category was Emerging Markets Equity, which suffered three consecutive months in the red and ended the quarter down 6.5%. Funds in this category were hit by the decline of Asian equities, as well as losses in Latin American stocks; notably, Brazil's BOVESPA Index dropped 14.8% during the quarter while the Brazilian real depreciated by 12.4% against the Canadian dollar.

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.


Fund Indices June Q2
Energy Equity 1.1 14.1
Natural Resources Equity 0.7 10.1
Canadian Equity 1.6 6.2
Cdn Focused Small/Mid Cap Equity 1.2 5.6
U.S. Small/Mid Cap Equity 2.8 5.6
Real Estate Equity 1.8 4.9
Canadian Dividend & Income Equity 1.5 4.4
Canadian Small/Mid Cap Equity 0.7 4.4
U.S. Equity 1.5 4.4
Canadian Focused Equity 1.2 4.2
Global Infrastructure Equity 2.6 4.0
North American Equity 1.2 2.8
Canadian Equity Balanced 0.9 2.6
Precious Metals Equity 1.1 2.5
Global Equity 1.0 2.2
Canadian Neutral Balanced 1.8 2.2
2035+ Target Date Portfolio 1.3 2.0
Global Equity Balanced 0.6 1.8
Cdn Inflation-Protected Fixed Income 0.9 1.7
Tactical Balanced 0.6 1.7
2030 Target Date Portfolio 0.7 1.6
Global Neutral Balanced 0.6 1.5
2035 Target Date Portfolio 0.7 1.4
Canadian Long Term Fixed Income 1.4 1.1
Global Small/Mid Cap Equity -0.3 1.1
2025 Target Date Portfolio 0.6 1.1
Canadian Fixed Income Balanced 0.5 0.9
Floating Rate Loans 0.2 0.9
Preferred Share Fixed Income 0.2 0.8
Financial Services Equity -0.3 0.8
Global Fixed Income Balanced 0.4 0.6
Short-Term Target Date 0.4 0.5
U.S. Money Market 0.2 0.5
High Yield Fixed Income 0.2 0.5
European Equity -0.1 0.4
International Equity -0.4 0.4
Canadian Fixed Income 0.5 0.3
Canadian Money Market 0.1 0.2
Canadian Short Term Fixed Income 0.2 0.2
Canadian Corporate Fixed Income 0.3 0.2
Global Corporate Fixed Income 0.1 -0.1
Global Fixed Income 0.0 -0.9
Greater China Equity -3.8 -1.1
Asia Pacific Equity -2.0 -1.7
Asia Pacific ex-Japan Equity -2.8 -3.2
Emerging Mkt Fixed Income -0.5 -4.6
Emerging Markets Equity -2.5 -6.5
Data as of June 30, 2018

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Christian Charest

Christian Charest  

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