The new year began in a very encouraging fashion for investment funds in Canada, with strong gains being posted in every equity, balanced and fixed income fund category in January.
All 42 of the Morningstar Canada Fund Indices had positive results for the month, including increases of more than 2% for each of the 24 equity fund categories, according to preliminary performance data released Thursday by Morningstar Canada.
The best-performing categories were those that invest in riskier asset types such as gold, emerging market equities, and small and mid-cap stocks. The top performer overall was the fund index that tracks the precious metals equity category, which rose 12.2% for the month. It was followed by three of the regional equity categories normally considered among the most volatile: emerging markets equity, greater China equity, and Asia Pacific ex-Japan equity, which saw increases of 9.2%, 8.7%, and 7.1%, respectively. Also faring exceptionally well were the Canadian focused small/mid cap equity, Canadian small/mid cap equity, and global small/mid cap equity categories, which rose by 6.1%, 5.3%, and 5%, respectively.
“Widespread strength in riskier asset categories is indicative of broader macro factors — rather than company-specific events — once again driving market movements. While there were a number of U.S.-listed companies that reported estimate-beating earnings, it’s likely that steps toward a solution in Europe and accommodative central-bank policies had an outsized influence on the month’s results,” says Morningstar fund analyst Nick Dedes.
“Meanwhile, Chinese stocks gained in January likely because of speculation that slowing growth will prompt a loosening of monetary policy by the country’s central bank and moves by the government to support domestic equities,” Dedes says.
While equity funds that target the relatively safer developed markets underperformed their riskier peers, the corresponding indexes nevertheless produced higher-than-normal returns in absolute terms in January. The international equity fund index increased by 4.2% for the month, while the indices that measure the U.S. equity, global equity, and Canadian equity increased by 4.1%, 4%, and 4%, respectively. Even the beleaguered European equity category was up 3.3% last month.
Fixed-income funds also posted gains across the board in January, which is unusual for a period when all segments of the equity markets do well. This may indicate that a portion of the investing public has less conviction in riskier assets and believes it appropriate to leave some money in the safety of bonds. The returns among the six fixed-income fund indices ranged from 0.3% for the Canadian short term fixed income fund index to 2% for the high yield fixed income fund index.
Final performance figures will be published next week.