The Canadian mutual fund industry had a rough start to the year in January as 20 equity fund categories were in the red for the month, according to preliminary performance data published on Tuesday by Toronto-based Morningstar Research Inc.
Only seven of the 42 Morningstar Canada fund indices increased during the month, while 18 indices decreased by 2% or more.
The month’s top-performing fund index, and the only one representing an equity fund category to post an increase in January, was the one that tracks the precious metals equity category, which increased 5.4%.
Domestic equity funds generally outperformed foreign equity funds in January. The best-performing domestic equity fund category was Canadian dividend and income equity with a 0.8% decrease. The fund index that tracks the more broadly based Canadian equity category was down 1.4%, reflecting the 1.2% decline of the S&P/TSX composite index for the month. The worst-performing domestic equity fund indices were Canadian focused small/mid cap equity and Canadian small/mid cap equity, which decreased 4.1% and 4.4%, respectively.
The U.S. equity fund index decreased 4.5%, ranking fifth from the bottom of the 42 fund indices. Currency effects once again helped Canadian investors who hold unhedged U.S.-dollar investments, as the Canadian dollar depreciated by 1.7% against the greenback. This mitigated the 5.0% drop in the S&P 500 index, when measured in U.S. dollars. The U.S. small/mid cap equity fund index was also one of the worst performers in January, with a 4.4% decrease.
Exposure to China hugely detracted from performance among foreign equity funds, as the Shanghai composite index and Hong Kong’s Hang Seng index decreased by 22.6% and 10.2%, respectively, in local currencies. The worst-performing equity fund indices were the ones that track the Greater China equity and Asia Pacific ex-Japan equity categories, down 10.3% and 6.7%, respectively. Other poor performers include the international equity fund index, with a 4.6% decrease, and Asia Pacific equity and emerging markets equity, which were both down 3.9%.
Three of the seven fixed-income fund categories tracked by Morningstar posted modest gains last month. The Canadian long term fixed income fund index was up 0.5%, while the global fixed income and Canadian fixed Income fund indices increased by 0.2% and 0.1%, respectively. The worst fixed-income performer — and worst category overall — was preferred share fixed income, which decreased 10.7%.
Preliminary fund performance figures are based on change in funds’ net asset values per share during the month, and do not necessarily include end-of-month income distributions. Final performance figures will be next week.