Global crises curb March fund returns

Investors who held onto Japanese equity funds through March probably know what to expect when they look at their statements this month. The earthquake, tsunami and nuclear crisis that struck the country took a heavy toll on equity investments.

Japan’s Nikkei 225 Index finished March with a year-to-date decline of 8.2%, having recovered from being down 19.3% at mid-month. At the same time, the yen gyrated wildly, initially soaring as insurance companies repatriated capital ahead of claims, then falling back when the G7 intervened.

By month-end, the Morningstar Japanese Equity Fund Index was down 9.7% for the month, making it easily the worst of 44 categories tracked by Morningstar Canada.

Equity funds in general were volatile in March, as Japan’s calamities added to the uncertainty generated by political uprisings across North Africa and the Middle East.

International equity funds lost 1.6%, thanks in large part to their average 16.7% allocation to Japanese equities. Equally hard hit was the European Equity category, which were pummeled by ongoing sovereign debt issues on the Continent.

Canadian equity funds were hit by falling uranium prices, as the Japanese nuclear crisis dampened global demand. On the flipside, the political crises rolling across North Africa and the Middle East boosted the price of crude by 5% for the month, but this did little to improve a global economic outlook crowded with crises.

The Morningstar Natural Resources Equity Fund Index lost 1.4%, while the broader Canadian Equity category declined 0.2%.

But it wasn’t all bad news for Canadian fund investors. The Emerging Markets category gained 4.7%, followed by Greater China Equity (4.5%) and Asia Pacific ex-Japan Equity (3.9%).

“Emerging market funds were partly helped by China’s manufacturing growth, which in turn boosted returns on its commodities and financial sectors,” says Morningstar fund analyst Adam Fisch. “Many emerging market stocks faced a quick drop and steady recovery following the Japanese earthquake and tsunami, and investors were often best served by holding on to their investments rather than jumping ship.”

Staff

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