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Equity Funds Shift into High Gear in February, Morningstar Canada Data Show

TORONTO, March 4, 2014 /CNW/ - After starting the year with lacklustre returns in January, mutual funds in Canada that invest in equities shifted into high gear in February, posting strong gains. All but one of the 22 Morningstar Canada Fund Indices that measure the aggregate returns of equity funds were up during the month, with 17 of the indices increasing by 3% or more. Fixed income funds, which recorded big gains in January, were relegated to the bottom of the returns table but remained in positive territory last month, according to preliminary performance numbers today released by Morningstar Canada.

For the second month in a row, funds in the Precious Metals Equity category were the top performers in February with an average increase of 11.4%, owing to solid returns from gold producers. As these stocks are also major constituents of funds in the Natural Resources Equity, Canadian Focused Small/Mid-Cap Equity, and Canadian Small/Mid-Cap Equity categories, the fund indices that measure these categories were also among the top performers with February increases of 6.6%, 5.4%, and 4.7%, respectively.

"Investors flocked to gold, viewing it as a safe haven amid turmoil in emerging markets and recent political tension in Ukraine, and also after economic growth in the United States missed its fourth-quarter estimates just as the Federal Reserve began tapering its quantitative easing program," Morningstar Fund Analyst Vishal Mansukhani said.

Among sector-diversified equity categories, the best-performing fund index was European Equity with a 5.9% increase in February. The U.S. Equity category also had a good month with a 4.2% increase, while the International Equity and Global Equity fund indices were up 4.8% and 3.8%, respectively. The worst performer, and the only index to post a negative result for the month, was the Morningstar Japanese Equity Fund Index with a 0.5% decrease. Unlike recent months, currency effects had little impact on the performance of Canadian-based foreign equity funds in February.

"European stocks were buoyed by a positive outlook for corporate earnings, supported by improving exports and higher consumer confidence across the continent, which led to a recovery in domestic demand," Mansukhani said. "In the U.S. markets, investors took the decreased economic growth figures in stride and instead chose to focus on better-than-expected readings from Chicago Purchasing Managers Index, which suggested that the U.S. economic recovery continued in February. Investors also shrugged off declines in consumer confidence from areas that were most affected by winter storms and severely cold weather during the last few weeks. Moreover, investors speculated that the Federal Reserve will continue to maintain monetary support."

In Canada, the three largest stock market sectors—financials, energy, and materials—all increased by more than 4% last month, which led to strong returns for diversified domestic equity funds. The Morningstar Canadian Equity, Canadian Focused Equity, and Canadian Dividend & Income Equity fund indices increased by 3.7%, 3.6%, and 3%, respectively.

"Canadian consumer spending increased, companies added to their inventories, and the nation's economy accelerated more than expected last quarter. This led the S&P/TSX Composite Index to post its eighth straight monthly gain," Mansukhani said.

For more about February 2014 fund performance, go to www.morningstar.ca.

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.

About Morningstar Research Inc. and Morningstar, Inc.
Morningstar Research Inc. is a Canadian subsidiary of Chicago-based Morningstar, Inc., a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 446,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 10 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and had approximately US$159 billion in assets under advisement or management as of Dec. 31, 2013. The company has operations in 27 countries.

©2014 Morningstar, Inc. All rights reserved.

SOURCE Morningstar Research Inc.

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