Equity funds drop in February; loonie's slide benefits foreign equity funds

Energy slump continues to hamper Canadian equity funds.

Christian Charest 2 March, 2018 | 6:00PM
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Every major stock market in the world was down in February, with losses typically ranging from 3% to 6%. As a result, every equity fund category in Canada, as measured by the Morningstar Canada Fund Indices, was also in the red. However, because the Canadian dollar depreciated against most foreign currencies, the losses for many foreign fund categories were limited to 1% or less, while domestic equity funds -- without the benefit of currency effects -- generally ended up at the bottom of the performance rankings with more severe losses.

Only seven of the 44 fund indices, which measure the aggregate returns of funds in various standard categories, were up during the month, all of them representing fixed income or money market categories, while 12 of the 37 losing indices lost 2% or more, according to preliminary performance data released today by Morningstar Canada.

The top performer overall was the Morningstar Floating Rate Loans Fund index, which gained 0.7% in February, while the fund indices that measure the aggregate returns of funds in four other fixed income categories posted increases between 0.1% and 0.3%. Three fixed income fund indices ended the month in negative territory, the worst of which was the Morningstar Preferred Share Fixed Income Fund Index, which lost 1%.

Among equity fund categories, the best-performing fund index was Asia Pacific Equity, which decreased by 0.01%, followed by Global Small/Mid Cap Equity, down 0.04%, and U.S. Small/Mid Cap Equity, down 0.2%.

In the United States, the S&P 500 Index had a total return of -3.7% in February, but for Canadian investors the losses were mostly offset by the U.S. dollar's 4.2% appreciation against its Canadian counterpart, leading to a decrease of 0.6% for the fund index that tracks the U.S. Equity category. The Global Equity fund index, whose constituent funds on average hold more than half their assets in U.S. stocks, followed closely with a 0.7% loss, while the European Equity fund index was down 1.8% for the month.

The worst-performing fund indices were the ones that track the Energy Equity, Precious Metals Equity and Natural Resources Equity fund categories, decreasing 7%, 5.7% and 5.3%, respectively.

As has been the case for the past several months, the energy sector continued to impede the Canadian market, which was reflected in the performance of domestic equity funds. The Morningstar Canadian Equity Fund Index had a 2.8% decrease, while the other four domestic equity fund indices posted results ranging from -2.2 for Canadian Focused Equity to -2.9% for Canadian Dividend & Income Equity. Despite the negative performance, domestic equity funds still managed to surpass the benchmark S&P/TSX Composite Index, which had a total return of -3.0%. The average fund in the Canadian Equity category allocated only 16.9% of its assets to the energy sector, compared to 18.7% for the benchmark, partly explaining the outperformance.

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.

Fund Indices 1 month
Floating Rate Loans   0.7
Cdn Inflation-Protected Fixed Income   0.3
Canadian Short Term Fixed Income   0.2
Global Fixed Income   0.2
U.S. Money Market   0.1
Canadian Fixed Income   0.1
Canadian Money Market   0.1
Asia Pacific Equity   -0.0
High Yield Fixed Income   -0.0
Global Small/Mid Cap Equity   -0.0
Short-Term Target Date   -0.2
U.S. Small/Mid Cap Equity   -0.2
Global Fixed Income Balanced   -0.3
Canadian Long Term Fixed Income   -0.3
2025 Target Date Portfolio   -0.5
Canadian Fixed Income Balanced   -0.5
U.S. Equity   -0.6
Global Equity   -0.7
Global Neutral Balanced   -0.7
2035 Target Date Portfolio   -0.7
Emerging Markets Equity   -0.8
2030 Target Date Portfolio   -0.8
Global Equity Balanced   -0.8
2035+ Target Date Portfolio   -0.9
International Equity   -1.0
Preferred Share Fixed Income   -1.0
Canadian Neutral Balanced   -1.3
Tactical Balanced   -1.4
Asia Pacific ex-Japan Equity   -1.4
Real Estate Equity   -1.7
European Equity   -1.8
North American Equity   -1.8
Financial Services Equity   -2.0
Canadian Focused Equity   -2.2
Canadian Equity Balanced   -2.2
Cdn Focused Small/Mid Cap Equity   -2.3
Greater China Equity   -2.5
Canadian Small/Mid Cap Equity   -2.7
Canadian Equity   -2.8
Canadian Dividend & Income Equity   -2.9
Global Infrastructure Equity   -3.1
Natural Resources Equity   -5.3
Precious Metals Equity   -5.7
Energy Equity   -7.0
Data as of Feb. 28, 2018


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Christian Charest

Christian Charest  

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