The aftermath of the Nov. 8 election in the United States saw stock markets on both sides of the border post strong results, which translated into big gains for mutual funds that invest in North American equities.
Twenty of the 44 Morningstar Canada fund indices, which measure the aggregate returns of funds in various standard categories, increased in November, including all indices that track Canadian or U.S. equity categories, according to preliminary performance data released Friday by Toronto-based Morningstar Research Inc.
U.S. equity and U.S. small/mid cap equity were the top-performing regionally based equity categories for the month, with their fund indices gaining 3.9% and 5.1%, respectively. The S&P 500 index had dipped about 2% in the days leading up to the election, but following the surprise victory by Republican candidate Donald Trump the U.S. stock index rebounded to reach record highs by the end of the month, producing a total return of 3.7%.
All five Canadian stock categories had positive results in November. The Canadian focused equity fund index, whose constituent funds hold on average about 30% of their assets in U.S. stocks, had the best performance in that group with a 2.5% gain, followed by Canadian dividend and income equity, up 2.4%. The Canadian small/mid cap equity and Canadian focused small/mid cap equity both gained 2.3%, while the Canadian equity fund Index was up 2.2%, matching the total return of the S&P/TSX composite index.
The top-performers overall were two fund indices that track cyclical sector stocks; the financial services equity fund index gained 7.0% for the month, while energy equity was up 6.9%. Both sectors got a boost following the U.S. election, as markets expect the new administration’s policies to be more favourable to the energy sector and to usher in higher interest rates, which would benefit financial services firms.
Overseas markets were generally down in November while the Canadian dollar appreciated against several currencies including the euro, the Japanese yen and the Chinese renminbi. This led to negative results for the fund indices that track several foreign stock categories including greater China equity (-0.9%), European equity (-1.7%) and Asia Pacific equity (-2.5%). The Emerging Markets equity fund ondex was the worst performer among foreign equity fund indices, down 5.6%.
For the second consecutive month, the worst overall performer was the precious metals equity fund index, down 16.6%. The price of gold futures dropped by more than 8% during the month as new expectations for world markets were priced in following the U.S. election.
With the prospects of rising yields, fixed income funds posted negative results last month. The worst-performing fund indices were Canadian long term fixed income and Canadian inflation-protected fixed income, down 4.3% and 2.0%, respectively. The Canadian fixed income and global fixed income fund indices both decreased 1.9%, while floating rate loans was the only fixed income fund index in the black, up 0.3%.
Morningstar Canada’s 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 published next week.