Equity funds struggle but remain positive

April 3, 2012 | Last updated on April 3, 2012
2 min read

Despite lackluster performance in March, the majority of equity funds in Canada posted gains for the first quarter of 2012, according to preliminary performance numbers released today by Morningstar Canada.

Among the 22 Morningstar Canada Fund Indices that measure the aggregate performance of equity fund categories, eight indices gained more than 10%, with only one posting negative result for the quarter.

“This was the first quarter in a long time where markets didn’t suffer from looming uncertainty over Europe,” says Morningstar fund analyst Adam Fisch. “However, fears that further financing will be necessary have emerged, leading to some speculation that investors can expect lower growth in the coming months.”

The top performer for the quarter was the Morningstar U.S. Equity Fund Index, which saw its best results over any three-month period in more than a year with an increase of 11.4%.

The second-best performer, with an 11.3% increase, was the Financial Services Equity index, followed by Emerging Markets Equity (11.1%), Health Care Equity (10.9%), and Global Small/Mid Cap Equity (10.8%).

According to Fisch, U.S. equities led the way during the first quarter following encouraging data on housing, consumer spending and consumer sentiment.

Most equity categories had solid returns in both January and February, but in March the results were negative for 10 of the fund indices. The best performers in March were the Health Care Equity and Financial Services Equity fund indices with gains of 4% each, followed by U.S. Equity with a 3.8% increase. All three of these fund indices were also in the top five performers for the quarter.

Most domestic-equity funds had negative results in March due largely to the natural resources sectors, which make up nearly half the Canadian market. The funds suffered significant losses last month, but they still performed well over the quarter.

The Morningstar Canadian Focused Small/Mid Cap Equity Fund Index led with an 8.6% increase over the past three months, while the Canadian Small/Mid Cap Equity gained 6.1% and Canadian Focused Equity was up 6%.

The Canadian Dividend & Income Equity category gained 4.6%, while the Canadian Equity Fund Index increased by 4.5% for the quarter.

The biggest losers in March were the Natural Resources Equity, down 8.4%, and Precious Metals Equity fund index, down 10.6%.

“More stability in the overall markets meant more of an appetite for risk, which often means less desire for the perceived safe haven of precious metals,” Fisch explains. “The Indian government’s decision to double import duties on gold and the subsequent strikes by protesting Indian jewelers also translated to less demand from one of the world’s largest gold importers.”