August was a generally laid-back month for fund investors, according to preliminary August 2016 performance data for the 44 Morningstar Canada Fund Indices. Most indices posted modest gains last month, while only four indices -- all in sector equity categories and with relatively few assets -- had negative returns.
In the developed markets including Canada, fund index returns in the major diversified equity categories mostly ranged from 0.5% to 1%, led by European Equity at 1.1%, with Global Equity not far behind at 0.9%. The Canadian Equity category returned 0.7%, followed by International Equity at 0.6% and U.S. Equity at 0.5%.
Investors were generally rewarded for taking equity or equity-like risks in August. This was also reflected in the fixed-income categories, where the best performing indexes -- High Yield Fixed Income and Preferred Share Fixed Income, both returning 1.3% -- are the most closely correlated with equities. By comparison, the Canadian Fixed Income, Canadian Long Term Fixed Income and Canadian Short Term Fixed Income indices languished with barely positive returns. Faring somewhat better was Global Fixed Income, up 0.4% during a month when the Canadian dollar slipped about half a cent in value versus its U.S. counterpart.
Last month's top performer among the 44 Morningstar indexes was Greater China, up 6.7%. Investor enthusiasm was sparked by the Chinese government's announcement in August that it intends to implement a stock-trading connection between the Hong Kong and Shenzhen stock exchanges, probably before the end of this year. This link will improve access by foreign investors to stocks listed on the technology-heavy Shenzhen exchange. It was generally a good month for investors in developing markets, as the Asia-Pacific ex-Japan Equity and Emerging Markets Equity indices gained 1.6% and 1.4% respectively.
In the sector-equity categories, the standout performers in August were Energy Equity and Financial Services Equity. Both indexes returned 3.9%, trailing only Greater China Equity. Buoyed by rising oil prices in August, energy was the top performer of the S&P/TSX sector sub-indexes, though it's off to a rocky start in September. Globally, the best performing sector in August was financial services, and in Canada the heavily weighted sector benefited from positive earnings surprises at major banks.
By far the worst performing index last month was the ever-volatile Precious Metals Equity, plunging 13.3%. After having risen by 29% through the first seven months of this year, bullion prices retreated 3% in August. Slumping gold-mining stocks dragged the Natural Resources Equity Index into negative territory, down 2.5%.
The two other indexes with negative returns in August were Real Estate Equity and Global Infrastructure Equity, down 3.6% and 0.9% respectively. These sectors would be among the most affected by an increase in interest rates, which may be getting closer, as Federal Reserve chair Janet Yellen indicated in an Aug. 26 speech.
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 | |
| Greater China Equity | 6.7 | |
| Energy Equity | 3.9 | |
| Financial Services Equity | 3.9 | |
| Asia-Pacific ex-Japan Equity | 1.6 | |
| Emerging Markets Equity | 1.4 | |
| High Yield Fixed Income | 1.3 | |
| Preferred Share Fixed Income | 1.3 | |
| European Equity | 1.1 | |
| Canadian Focused Small/Midcap Equity | 1.0 | |
| Asia-Pacific Equity | 0.9 | |
| Canadian Dividend & Income Equity | 0.9 | |
| Canadian Small/Midcap Equity | 0.9 | |
| Global Equity | 0.9 | |
| Canadian Focused Equity | 0.8 | |
| Canadian Inflation-Protected Fixed Income | 0.8 | |
| Floating Rate Loans | 0.8 | |
| Canadian Equity | 0.7 | |
| North American Equity | 0.7 | |
| 2035+ Target Date Portfolio | 0.6 | |
| Canadian Equity Balanced | 0.6 | |
| International Equity | 0.6 | |
| 2035 Target Date Portfolio | 0.5 | |
| Global Equity Balanced | 0.5 | |
| U.S. Equity | 0.5 | |
| Global Fixed Income | 0.4 | |
| Global Neutral Balanced | 0.4 | |
| 2030 Target Date Portfolio | 0.3 | |
| Canadian Fixed Income Balanced | 0.3 | |
| Canadian Neutral Balanced | 0.3 | |
| Global Fixed Income Balanced | 0.3 | |
| U.S. Small/Midcap Equity | 0.3 | |
| 2025 Target Date Portfolio | 0.2 | |
| Short Term Target Date Portfolio | 0.2 | |
| Tactical Balanced | 0.2 | |
| Canadian Fixed Income | 0.1 | |
| Canadian Long Term Fixed Income | 0.1 | |
| Canadian Short Term Fixed Income | 0.1 | |
| Global Small/Midcap Equity | 0.1 | |
| Canadian Money Market | 0.0 | |
| U.S. Money Market | 0.0 | |
| Global Infrastructure Equity | -0.9 | |
| Natural Resources Equity | -2.4 | |
| Real Estate Equity | -3.6 | |
| Precious Metals Equity | -13.3 | |
| Data as of Aug. 31, 2016 | ||
