Canadian equity funds surge in May

Canadian equity funds were a hot commodity last month, as the Natural Resource Equity Fund Index led Morningstar’s 42 Canada Fund Indices.

The domestic stock market had a good run overall last month, with high activity in the M&A market and a strong Canadian economy contributing to the positive results. The S&P/TSX Composite Index jumped by 5%, or 640 points in May, while the Canadian Equity Fund Index had a 4.3% return, resulting from strong broad markets.

Besides Natural Resources, five other Canadian-focused funds laid claim to the top six spots on Morningstar Canada’s Fund Indices Rankings. The Canadian Small/Mid Cap Fund Index had a good month coming in third, with 3.7%, while the Canadian High Income Equity Fund Index climbed 3.2% to settle in fourth place.

Canadian-heavy fund indices weren’t the only winners — funds invested in U.S. equities had positive returns too. However, the rising Canadian dollar offset a lot of the gains. Still, the US Small/Mid Cap equity and US Equity fund indices both climbed 2% and 0.6% respectively. “Investors pushed stocks higher in the belief that a weaker economy sets the stage for a more benign interest rate environment which bodes well for stocks,” says Morningstar analyst Philip Lee.

International markets also fared well in May, with the Asia Pacific Rim ex-Japan Equity Fund Index gaining 2.3% and the Asia Pacific Rim Equity Fund climbing 0.6%.

Thanks to strong M&A activity, the European equity markets showed broad advances too. The DAX jumped more than 6%, while the FTSE 100 and CAC 40 both moved up 2.7% and 2.4% respectively. Despite those gains, the European Equity Fund Index suffered a 0.8% loss due to currency deprecation.

While a lot of fund indices did well, it wasn’t all good news — especially for fixed-income funds. For the second month in a row, fixed-income funds suffered heavy losses, led by the Global Fixed Income Fund Index, which was down 2.8%, landing near the bottom of the 42 Morningstar indices. The Canadian Core Fixed Income fell 1.6%.

In the precious metals department, the Precious Metals Equity Fund Index lost cash in May, despite a 2.3% boost on May 31. The index was down 2.2% as the price of bullion fell by about $16.

Overall, Morningstar reports that the materials were the best performing sector in May, with gains of 8.2%. Not far behind were the industrials and energy sectors, with gains exceeding 7%, while the utilities sector had returns of 6%. The IT sector fared respectively, gaining 5.8%. The telecommunications industry returned 4%.

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com