Japanese equity funds lead in first half

(July 20, 2004) After years of poor economic performance, Japan has topped the list of places to invest for the first six months of 2004, according to Morningstar Canada.

The Morningstar Canada Japanese equity fund index was up 15.8% on a year-to-date basis, far surpassing the second-place European equity fund index, which gained 7.5% over the same period.

The Japanese index was certainly helped along by its top performer, the AGF Aggressive Japan Class, which returned 31.3% by focusing on Japan’s small and mid-cap stocks.

The Morningstar U.S. equity index turned in a relatively weak performance, garnering a six-month return of 4.8%, while the Canadian equity fund index returned 4.4%. Canadian small-cap stocks turned in the best returns, with their Morningstar index gaining 6.3%.

Healthcare stocks were the place to be in Canada, as this index gained 9.9%. Investors dumped their precious metals funds though, and the index dropped 19.7%. In the fixed income field, high-yield bond funds were the best performers topped the charts, with an index gain of 2.3%. The rest of the bond category returned less than 1%.

The worst performing sector was the Asia ex-Japan index, which lost 1%. Asian funds which declined investments in Japan accordingly turned in poor performance, as the benchmark Nikkei index is currently the top performer on a year-to-date basis. Hong Kong’s Hang Seng has dropped since the beginning of the year, following a run-up throughout 2003.

Asia/Pacific Rim funds, which are mandated to include Japanese stocks, were dragged down by the rest of the region, posting an index return of just 1.7%.

The global equity index and international equity index turned in performances in the 7% range, with the key difference between the two indices being that global funds include U.S. investments.

The emerging markets equity fund index gained 1.3% and the Latin American equity fund index was up 2.4%.

The Morningstar Canada fund indices are weighted averages of the total returns of funds in 32 different categories. In addition to the returns of all funds in a category, separate index returns are also reported for mutual funds and segregated funds.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com