September bolsters Q3 performance of most funds: Morningstar

The biggest increases in the month among the 42 benchmarks came from some of the most volatile sectors, including the best one-month performance: a return of 11.7% logged by the precious metals equity category. Precious metals funds were also the leaders for the third quarter, as the index rose 19.5% in the past three months, according to preliminary performance numbers today released by Morningstar Canada.

“Longer-term inflationary pressure of major stimulus efforts was a boon for precious metals, which also benefited from a drop in the U.S. dollar,” Dedes says, pointing out that gold climbed more than 10% and silver jumped more than 25% in the third quarter.

Natural resources equity funds ranked second in the quarter, with the index increasing 11.5%. A one-month surge of 5.6% contributed to the category’s quarterly performance.

The performance of these sectors and stocks in general have been aided by the U.S. Federal Reserve’s announcement of further asset purchases and its expectation for exceptionally low short-term interest rates through at least 2015, along with the European Central Bank’s announcement of an unlimited bond-buying program for distressed government bonds. “These stimulative measures have had a big impact on categories that traditionally exhibit high volatility and, in many cases, are highly levered to prospective economic growth,” Dedes says.

On the domestic front, strength in the resources and financial services sectors helped carry the S&P/TSX Composite Index to increases of 3.4% in September and 7% over the last three months. Funds that invest in Canadian stocks posted solid gains in September, with the Canadian small/mid cap equity Index increasing by 7.3% to rank third for the quarter. By comparison, the Canadian focused small/mid cap and Canadian equity indices each rose 3% in September alone, making for increases of 6.1% and 5.9%, respectively, in the third quarter.

A similar third-quarter trend took shape in the United States, with solid returns of 2.5% for both the U.S. small/mid-cap equity and the U.S. equity indices.

Two regional indices were in the top 10 for the third quarter. The European equity index ranked sixth with a return of 5.3%, while the Asia Pacific (excluding Japan) index increased 3.6% to land in 10th place. The latter index rose 5.7% in September.

September also closed a mostly positive quarter for investors in more geographically diversified overseas funds. The volatile emerging markets equity index rose 4.7% in the month, ending the third quarter with an increase of 2.6%. Also showing solid returns over the last three months, the international equity, global equity, and global small/mid cap equity indices rose 3.5%, 2.6%, and 1.9% respectively, with those results partly supported by corresponding September returns of 2.7%, 2.1%, and 3.7%, respectively.

After negative returns in July and August, a surge of 6.2% in September boosted the greater China equity index and helped this category of funds eke out a 0.5% return for the quarter.

Despite a positive return of 1.5% in September, the worst performance and the only third-quarter decrease belonged to the Japanese equity index, which posted a decrease of 6.1% in the period. “Demand for the country’s exports has been soft and a strong currency has also been a headwind, Dedes said.

The continuing appeal of safety for investors helped drive positive results across fixed-income categories. The global fixed income index returned 2.2% in the Canadian fixed income index, meanwhile, rose 1.2% for the quarter and 0.6% for the month, slightly underperforming the Canadian long-term fixed income index, which rose 1.7% for the quarter and 0.8% for the month.

Morningstar Canada’s preliminary fund performance figures are based on the 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.