Morningstar confirms May a tough month for funds

Investors who sold in May and went away could be heaving a sigh of relief, as long as they sold at the beginning of the month. Equity mutual funds took a pounding as global markets faced their first real market correction in years, according to the latest performance data from Morningstar Canada.

Of the 31 separate fund indices Morningstar currently tracks, 26 were in the red for the month, while the other five — largely made up of fixed income assets — struggled to keep their heads above water.

Real estate funds managed to ring in the top performance, as that index earned investors a still-paltry 0.4%. The Canadian Short-Term Bond & Mortgage Fund Index, gained 0.2%, and the Canadian Bond Fund Index edged almost imperceptibly higher, gaining 0.05%. The Canadian and U.S. money-market fund indices each rose 0.1%.

Not all fixed income fund indices made money in May, as the High Yield Bond index lost 0.3% and the Foreign Bond fund index dropped losing 0.4%. But these were still among the top performers.

“Stock markets around the world, overheated after months of strong performance, suffered a correction during May,” said Morningstar Canada analyst Brian O’Neill.

The worst performance for the month was turned in by the Emerging Markets Equity Fund Index, which dropped a whopping 12.3%. But O’Neill says they were due for a pullback after some impressive gains earlier in the year.

Another group that had enjoyed great returns through April, only to get beaten up in May, was the Precious Metals Fund Index, which lost 9.7%. It wasn’t that the price of precious metals fell — gold gained 3% on the month — but investors were ready to take some of their profits from the mining sector.

The broader Natural Resources Fund index was unable to profit from a flurry of M&A activity in the mining sector, falling 5.2% on the month. Energy prices also took a toll on this index.

“Oil fell from more than $75 a barrel to about $71 during the month, and the price dipped into the $60s mid-month,” O’Neill said.

Investors with a heavy weighting in the U.S. also took some losses, as the U.S. Equity Fund Index fell 4.3%. The U.S. Small & Mid-Cap Fund Index fared even worse, dropping 6.3%.

Canadian equity funds performed slightly better, with the Canadian Equity (Pure) index losing 3.8%, and the Canadian Equity Fund Index, which allows some foreign content, dropping 4.2%.

The Morningstar Canada Global Equity Fund Index fell nearly 5% during the month.

Despite the beating it took in May, the Precious Metals index remains the best performer on a year-to-date basis, gaining 28% by the end of May. The Natural Resources and Canadian Small Cap Equity indices are each up by about 10%.

Among the larger mandates, the European Equity Fund index has gained nearly 8% on the year, while the Asia Ex-Japan is up 6.3%. American and Japanese funds have trailed with negative performances so far, with standard U.S. Equity Fund index falling 2.6% and the Japanese index dropping 5%. In terms of poor performance, that makes the Japanese index second only to the Science & Technology Fund index, which is down 5.7% on the year.

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