The end of June saw increased volatility on worldwide stock and bond markets in the wake of the Brexit vote that will see the United Kingdom leave the European Union. Nevertheless, most fund categories had flat performance for the month, with thirty-four of the 42 Morningstar Canada fund indices posting returns between 2% and -2%. As a result, 39 of the 42 fund indices posted gains during the quarter, including 10 indices that increased by 3% or more, according to preliminary data released Tuesday by Toronto-based Morningstar Research Inc..
The best performer for the month of June was the fund index that tracks the precious metals equity category, which added 19.9% to its already impressive year-to-date performance. Funds in this category were also the top performers for the quarter with a 42.9% increase; year to date the precious metals equity fund index has gained a staggering 98.3%. The second-best performer for both the month of June and the second quarter was the natural resources equity fund index, which gained 4.7% and 18.3%, respectively.
In Canada, the S&P/TSX composite index had three consecutive months in positive territory, ending the second quarter up 5.1%. The energy and materials sectors were the biggest contributors to Canadian stock market performance, while the financial services sector was a detractor. Funds in the Canadian equity category followed the pace of the benchmark but underperformed, with the Canadian equity fund index posting a 3.3% increase for the quarter. The fund indices that track the Canadian small/mid cap equity and Canadian focused small/mid cap equity categories did better, increasing 6.8% and 3.5%, respectively, while the Canadian dividend & income equity and Canadian focused equity fund indices were up 2.4% and 1.8%, respectively.
Funds in the U.S. equity category also underperformed their benchmark during the second quarter, collectively posting a 1.7% increase compared to 2.5% for the S&P 500 Index. While the net currency movement between the Canadian and U.S. dollars was minimal for the quarter, it was a very volatile period that may have adversely affected funds that do not hedge their currency exposures.
The worst-performing fund index for both the month and the quarter was the one that tracks the European equity category, which decreased 5.6% in June and 3.2% in the second quarter. Stock markets in France and Germany suffered losses of around 6% in June and were down 3% to 3.5% for the quarter. And while the United Kingdom’s FTSE 100 index was one of the best performers among major developed markets with a 5.3% increase in the second quarter, the pound sterling depreciated by 7.7% against the Canadian dollar during that time, to the detriment of Canadian investors.
Among other sector-diversified foreign-equity fund categories, the best performers were Asia Pacific equity and emerging markets equity, both up 2.2% for the quarter. The Asia Pacific ex-Japan Equity fund index increased 1.1% and the global equity fund index was up 0.9%. The international equity fund index, which has hefty exposure to European stocks, suffered a 3.7% decrease in June and was the second-worst performer for the quarter with a 0.9% decrease.
Fixed income funds had a strong rally in June, as market uncertainty signalled a potential delay in rate increases by central banks. The Canadian long term fixed income fund index increased 3.8% for the month and ended the quarter up 5.4%. The high yield fixed income, Canadian inflation-protected fixed income and Canadian fixed income fund indices also did well with gains of 3.6%, 3.1% and 2.3%, respectively, for the quarter.
Morningstar’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.