Thirty-nine of the 44 Morningstar Canada Fund Indices increased during 2016 including 10 indices that increased by 10% or more, according to year-end performance data released on Wednesday by Toronto-based Morningstar Research Inc.
Canadian stocks had their best calendar-year performance since 2009, with the S&P/TSX Composite Index posting a total return of 21.1%. The five fund indices that track domestic equity fund categories all ended the year among the best performers, with increases ranging from 11.8% for the Canadian focused equity fund index to 17.9% for the Canadian dividend and income equity fund index. The fund index that tracks the purely domestic Canadian equity category rose 17.7%, underperforming the benchmark.
Canada’s three largest sectors — financial services, energy, and basic materials — all contributed positively with total returns of 24.2%, 39.6%, and 41.2%, respectively. The best-performing fund indices overall were those that track four sector-specific fund categories: precious metals equity, natural resources equity, energy equity, and financial services equity, up 54.0%, 41.0%, 36.1%, and 24.3%, respectively.
Currency effects detracted from performance for most foreign-equity fund categories during 2016 as the Canadian dollar appreciated against many of the world’s major currencies. This was most notable in the European equity category, where funds collectively lost 5.5% despite strong market performances in France, Germany, and the United Kingdom. The loonie gained 6.1% against the euro and 23.2% against the U.K. pound during the year, pushing European equity funds to the bottom of the 2016 performance table.
In the United States, the S&P 500 index had a total return of 12.0%, but funds in the U.S. equity category significantly underperformed, with the U.S. equity fund index increasing 6.4% for the year. Currency movements explain part of the underperformance, as the Canadian dollar appreciated 3.1% versus its U.S. counterpart.
The only major market to post a negative performance in 2016 was China, where the Shanghai composite index decreased 12.3%. This was partially offset by gains on the Hong Kong and Taiwan markets, but the Greater China equity and international equity fund indices were still among the worst performers in 2016 with decreases of 3.8% and 5.1%, respectively.
All eight fund indices that track fixed-income categories increased in 2016, though many decreased during the fourth quarter. The best-performing fund indices in this area were high yield fixed income, floating rate loans, and preferred share fixed income, increasing 9.1%, 8.0%, and 7.1%, respectively. The two categories most sensitive to interest rates — Canadian long term fixed income and Canadian inflation-protected fixed income — had both been increasing steadily since the start of the year but suffered losses in each of the past three months, finishing with increases of 1.7% and 1.8%, respectively, for the year.
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 on next week.
Photo copyright: nonwarit/123RF