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 www.morningstar.ca 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 |