Canadian domestic equity funds move forward in August

For the second consecutive month, the best-performing fund index was Morningstar Precious Metals Equity, which increased by 12.1% in August. Despite two solid months of performance, precious metals funds are still in negative territory for the year to date after a 46% decline in the first six months of 2013.

“The precious metals equity category is sensitive to actions by central banks; any reduction in stimulus would have a negative impact on the price of gold because investors use the metal to hedge against inflationary risk arising from the stimulus,” said Vishal Mansukhani, Morningstar fund analyst, in a release. “Negative U.S. economic data reports would positively impact this category, as it would reduce the likelihood of central banks reducing stimulus.”

Also among the top performers was the Morningstar Natural Resources Equity Fund Index with a 3.7% increase. “This is an asset class that can be significantly impacted by geopolitical happenings around the world,” said Mansukhani. “Oil prices hit a six-month high because of the possibility of western countries’ involvement in the Syrian conflict. Though Syria is not a major oil exporter, prices are affected by concerns that violence may spread to larger oil exporters and possibly disrupt transport routes.”

A third sector-specific fund index, Financial Services Equity, was also a top-five performer with a 1.6% increase in August. With financials and natural resources (including gold) making up the bulk of the Canadian equity market, it is not surprising that diversified domestic equity funds also did well in August. The Morningstar Canadian Equity Fund Index increased by 1.2%, while the Morningstar Canadian Small/Mid Cap Equity Fund Index increased by 1%.

For most foreign equity funds, market declines in the United States and many European and Asian countries were mitigated by the depreciation of the Canadian dollar against many of the world’s currencies in August. As a result, the European Equity fund and International Equity fund indices posted modest increases of 0.4% and 0.2%, respectively, while the Global Equity, U.S. Equity, and Asia Pacific Equity fund indices decreased by 0.1%, 0.7%, and 0.9%, respectively.

One notable exception was the Morningstar Greater China Equity Fund Index, which was the second-best performer overall with a 4.1% increase, owing to a strong gain in the Shanghai Composite Index as well as favourable currency effects.

Meanwhile, the Emerging Markets Equity, Japanese Equity and Real Estate Equity fund indices say the worst performance in August with decreases of 1.6%, 2.1%, and 3.3%, respectively.