Global banks’ strength boost fund returns

By Steven Lamb | August 4, 2010 | Last updated on August 4, 2010
2 min read

July proved to be the best month so far this year for equity fund investors, reversing the disappointing trend set in the second quarter, according to Morningstar Canada.

Overall, only two of the 24 equity-based Morningstar Canada Fund Indexes failed to join the rally.

The global financial services sector helped boost returns, as fears over excessive regulation subsided. This was especially true in Europe, where bank stocks also benefited from largely positive stress-test results. The European equity category was the top performer for the month, gaining 7.8%.

“The Basel Committee on Banking Supervision, which sets guidelines for capital and banking regulations around the world, published guidance that suggested its upcoming principles on new capital and liquidity would be watered down from their original versions, and that their implementation would be delayed until 2018,” said Esko Mickels, fund analyst for Morningstar Canada. “This put wind in the sails of global financial stocks.”

For Canadian investors, that wind gained an added puff from the currency markets, as the euro climbed 3.2% against the dollar.

Optimism toward the financial sector was not contained in Europe, however, and the financial services equity fund index posted the second best overall performance, with a gain of 6.3%.

The “Top 5” leaderboard was fleshed out by emerging markets equity funds (up 6.2%), real estate equity (up 6.1%) and international equity (up 5.7%).

The hefty weighting of financials in Canada helped to boost domestic equity fund categories as well, with Canadian-focused equity and Canadian equity indexes gaining 4.2% and 4%, respectively. The Canadian small/mid-cap equity and Canadian-focused small/mid-cap equity fund indexes were both up 3.8%.

While the loonie fell against the euro, it gained 3.1% against the U.S. dollar, cutting into the healthy returns that Canadian investors might otherwise have realized. The S&P 500 Index was up 7% on stronger than expected earnings, but the U.S. equity fund index returned 4% for the month.

The only two equity indexes that posted negative returns were the healthcare equity index, down 0.9%, and the precious metals index, off 6.3%.


Steven Lamb