Christian Charest: For Morningstar, I'm Christian Charest. It's the end of the third quarter and for mutual funds in Canada—while the month of August was very positive— unfortunately September wasn’t [as positive]. Pretty much every fund category lost ground during the month, which led to some quarterly numbers that were lackluster at best, although most were positive.
I'm here with Morningstar manager analyst, Shehryar Khan, to talk about the results for the quarter.
Now, Shehryar, one of the main stories we saw during the month of September was the Canadian dollar [losing] ground against a lot of currencies around the world. Now, that had some positive effects for certain types of mutual funds and some negative effects for others. Let's start with the positive.
Shehryar Khan: One of the positives was that investors invested in the U.S. Equity category and that would have had strong returns. Even though the U.S. Equity category itself was flat in U.S. dollar terms and Canadian dollar terms because the Canadian dollar declined. There was a benefit to Canadian investors, so the results were stronger [in that category] for the quarter.
Charest: Actually U.S. Equity was the only equity category to give a positive return during the month of September. It eked out a 0.3% gain, but it was also one of the best performers for the quarter, again mostly due to currency effects. Now there were also some positives for some foreign equity categories.
Khan: Similarly one of the same things happened with China. Again it was mainly flat over the quarter and the currency devaluation helped Canadian investors over the quarter to have strong returns.
Charest: Greater China Equity category, the best performer overall for the quarter with a 4.6% gain, even though it did underperform during September with a 3.3% loss. Now at the other end of the spectrum—the negative—the three worst-performing categories for both the month of September and for the quarter were the three resource-oriented categories. So we're talking Energy Equity, Natural Resources Equity and Precious Metals Equity, all three of them suffered pretty severe losses.
Khan: Yeah over the month and over the quarter, those three areas in particular suffered. There were a few factors why: weaker than expected growth in Canada; retail sales, which have been strong, dropped off in July; and that data came out, unemployment has been higher than the Bank of Canada would like; inflation has been higher than the Bank of Canada would like. So we're in this middle ground where they had been adopting a dovish tone in terms of interest rates, but they're now tempering those statements.
So because of that lack of clarity, and of course, again the devaluation of the Canadian dollar, commodity currency really suffered. Currencies and the sector really suffered over the quarter, so that was reflected in those three sectors.
Charest: It was also reflected in the broader domestic equity categories. We saw Canadian Equity, Canadian Focused Equity, Canadian Focused Small/Mid Cap Equity categories, all had losses during the month of September.
Okay, thank you very much Shehryar for your insights. For more on Morningstar’s survey of fund performance for the third quarter of 2014, please click on the link right below the video player and check back with us regularly for more news and updates.
