Bond fund returns crush equity funds in 2011

The year 2011 will go down in the books as a rough one for equity investors, at least among Canadian mutual funds, as 20 of Morningstar Canada’s 22 equity fund indexes posted a negative return for the year.

“Funds in most equity categories struggled under the uncertainty that accompanied natural disasters, the European debt crisis, and continued turmoil in the Middle East,” said Morningstar Fund Analyst Adam Fisch.

The Precious Metals Equity Index was hardest hit, plummeting 24.5% for the year, as mining stocks failed to track the rising price of gold and silver.

Also hard hit was the Morningstar Greater China Equity Fund Index, which fell 21%, followed by Emerging Markets Equity (-18.7%), Asia Pacific Equity (-16.5%), and Asia Pacific ex-Japan Equity (-15.1%). Returns in local currencies were even worse, but a falling loonie helped shield Canadian investors from the full force of declines.

A poor economic outlook for the emerging markets undercut the price of many commodities, weighing on many Canadian equity funds. The Morningstar Canadian Equity Fund Index posted a decline of 10.4%, while the Canadian Small/Mid Cap Equity Fund Index dropped 10.2%.

Among equity funds, the standout performers were the Real Estate Equity and Health Care Equity indexes, which gained 12.1% and 7.1%, respectively, on the year.

Fixed income funds lived up to their role as a counterweight to equity volatility, The Morningstar Canadian Long Term Fixed Income Fund Index returned an astounding 17.3%, making it the best performing category for the year.

The Canadian Inflation-Protected Fixed Income Index delivered a 14.9% gain, while the broad Canadian Fixed Income category rose 7.4% for the year.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.