Which Morningstar index performed best in 2017?

How well did markets fare in 2017?

Morningstar Research Inc.’s preliminary 2017 performance report reveals that 41 of its 44 Canada fund indexes increased during the year, 12 of them by 10% or more. (The Canada fund indexes measure aggregate returns in various categories.)

The best performer was the one that tracks the Greater China equity category, with a 35.9% increase, mirroring the 36% increase of Hong Kong’s Hang Seng. The report notes that funds in this category that hedge their currency exposure will likely outperform their peers that don’t, since the Hong Kong dollar depreciated by 7.3% against the loonie during the year.

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Though domestic equity funds had positive results for the year, they trailed their foreign counterparts: the Morningstar Canadian Equity Fund Index increased 7.7%, underperforming the benchmark S&P/TSX Composite, which had a total return of 9.1%.

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The indexes that track Canadian dividend and income equity, and Canadian small- and midcap equity categories were up 7.9% and 3.2%, respectively.

Among Canada’s three largest stock sectors, financial services and basic materials both contributed positively with total returns of 13.3% and 7.7%, respectively, while energy was a detractor with -10.6%.

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Here are other highlights from Morningstar’s report:

Other market indexes in the Asia-Pacific region also performed well last year, including South Korea’s KOSPI, Japan’s Nikkei 225 and the Taiwan Stock Exchange Weighted Index, which increased 21.8%, 19.1% and 15%, respectively. As a result, the fund indexes that track the Asia Pacific equity and Asia Pacific ex-Japan equity categories finished 2017 among the top performers, with increases of 24.9% and 25.7%, respectively. The strength of Asian stocks also helped funds in the emerging markets equity category, which collectively increased 24.3%.
European equity funds benefited from a combination of strong market performance and favourable currency movements, and the Morningstar European Equity Fund Index posted a 14.6% increase for the year. Germany’s DAX increased 12.5% in 2017 when measured in local currency, while France’s CAC 40 and the United Kingdom’s FTSE 100 were up 9.3% and 7.6%, respectively. Meanwhile, the euro appreciated by 6.2%, and the U.K. pound by 2.4%, against the loonie.
In the U.S., the S&P 500 posted a total return of 21.8%—its ninth consecutive calendar year in positive territory and best performance since 2013. However, Canadian fund investors captured only a portion of this gain as the Morningstar U.S. Equity Fund Index increased 13.2% for the year, hampered by the loonie’s 7% appreciation against the U.S. dollar.
Despite the interest rate hikes enacted by central banks in many countries, including Canada and the U.S., seven of the eight fund indexes that track fixed income categories increased in 2017. By far the best-performing fund index in this area was preferred share fixed income, with a 14.1% increase. Second-best was Canadian long-term fixed income, one of the categories most sensitive to interest rates, which finished the year with a 6.3% increase, suggesting that the market might have been expecting more meaningful rate hikes from the Bank of Canada. The only fixed income category in the red was Canadian inflation protected fixed income, down 0.03%.