October was a volatile month for the world’s stock markets, which saw steep declines during the first two weeks, according to a Morningstar Canada report. By month’s end, however, a large portion of those losses had been nullified as markets rallied.
For Canadian equity fund investors, this generally translated into positive results for foreign equity funds and losses for domestically focused funds. Eleven of the 22 Morningstar Canada Fund Indices that measure the aggregate returns of funds in equity categories were in the black in October.
“The month was plagued by dramatic sell-offs as investors were concerned about numerous issues, including airstrikes in Syria, protests in Hong Kong, the spread of Ebola, worries about the global economy, and fears that the U.S. Federal Reserve would raise interest rates sooner than expected,” says Morningstar Manager Research Analyst Vishal Mansukhani. “The month ended with news that the Bank of Japan would increase its stimulus plan, which boosted investor confidence in the global economy and sent stocks around the world soaring.”
The best-performing fund index in October was Greater China Equity with a 5.3% increase, reflecting strong gains on both the Shanghai andHong Kong stock exchanges, as well as modest appreciations by both the Chinese yuan and Hong Kong dollar versus the Canadian dollar. Also among the top performers were the fund indices that measure the Asia Pacific ex-Japan Equity and Asia Pacific Equity categories, with increases of 3% and 2.3%, respectively.
“Chinese stocks were boosted by a rise in industrial profits and indications that free-trade zones will be set up across the country. Moreover, speculation that the People’s Bank of China will take additional steps to decrease borrowing costs also acted as a catalyst for Chinese equities,” says Mansukhani.
Funds that invest in U.S. stocks also ended the month among the best performers, with the U.S. Small/Mid Cap Equity and U.S. Equity fund indices posting increases of 4.2% and 2.7%, respectively. Meanwhile, the fund indices that track the Emerging Markets Equity and Global Equity categories increased by 1.3% and 1%, respectively, while International Equity and European Equity decreased by 0.1% and 1.7%, respectively.
The worst performers in October were the fund indices that measure the Energy Equity, Natural Resources Equity, and Precious Metals Equity categories, which decreased by 9.5%, 11.4%, and 17.3%, respectively. Those three categories were also at the bottom of the performance table in September with similar losses.
“Prices remained high throughout the year as traders focused on the risk that turmoil in Libya, Iraq, and Ukraine would disrupt supply, but production remained unaffected,” he says. “In fact, oil output from Libya has tripled since June, and production in Iraq is close to its 13-year high.”
He adds, “As for Precious Metals Equity funds, gold stocks were hurt by falling gold prices. Strong U.S. economic growth and increased stimulus in Japan have boosted the U.S. dollar, which tends to have a negative impact on gold.”
As was the case in September, slumping natural resources also impacted the broader domestic equity fund indices, which all had negative results last month. The Canadian Dividend & Income Equity and Canadian Focused Equity fund indices both decreased by 0.3%, while Canadian Focused Small/Mid Cap Equity, Canadian Equity, and Canadian Small/Mid Cap Equity decreased by 0.4%, 1.4%, and 2.6%, respectively.