In October, foreign equity and fixed-income funds were benefiting from strong market returns, and they were further buoyed by a depreciating Canadian dollar at the same time, says a report from Morningstar Research.
Last month, the Canadian dollar depreciated significantly versus many world currencies: approximately 2% against both the euro and the pound, and more than 3% against the U.S. dollar and major Asian currencies.
The best-performing fund index for the month was the one that tracks the Asia Pacific Equity category, which increased 7.7%. Along with the currency effect, funds in this category benefited from strong gains by Japanese stocks, with the Nikkei 225 Index gaining 8.1% for the month when measured in local currency.
Morningstar points out that South Korean stocks, which on average account for 10.7% of fund assets in that category, were also a major contributor, with the KOSPI Composite Index gaining 5.4% and the South Korean currency appreciating by 5.9% against the loonie.
The fund index that tracks the Asia Pacific ex-Japan Equity category was the second-best performer in October with a 7.1% increase, says Morningstar. Funds in this category typically hold a majority of their assets in stocks from South Korea and Greater China; indexes tracking the Shanghai, Hong Kong, and Taiwan stock markets were up 1.3%, 2.5%, and 4.5%, respectively, for the month.
The Morningstar Greater China Equity Fund Index was the third-best performer with a 6.6% increase, while the Morningstar Emerging Markets Equity Fund Index was fourth with a 5.4% increase.
The Morningstar U.S. Equity Fund Index increased 4.7% for the month, ranking fifth overall. This performance reflected a 2.3% total return for the S&P 500 Index and a 3.3% appreciation of the U.S. dollar against its Canadian counterpart. The fund index tracking the U.S. Small/Mid Cap Equity category was up 3.4%.
Canadian stocks had a solid month in October, as the S&P/TSX Composite Index broke through the 16,000 mark for the first time and ended the month with a 2.7% total return, says Morningstar. However, without the benefit of currency effects, funds that invest in domestic equities underperformed foreign peers.
Still, the Morningstar Canadian Equity Fund Index surpassed the benchmark with a 2.9% increase for the month, while the Canadian Focused Small/Mid Cap Equity Fund Index increased 3.1%. The other three domestic equity fund categories—Canadian Dividend & Income Equity, Canadian Focused Equity, and Canadian Small/Mid Cap Equity—all increased 2.7%.
The worst-performing equity fund indices were all sector-fund trackers. The worst overall — and the only fund index to post a negative result in October — was Precious Metals Equity, which decreased 2.2%.
Energy Equity was up 1.4%, while Real Estate Equity, Global Infrastructure Equity, and Natural Resources Equity all increased 2.4%.