Q1 results bring more performance misery for mutual funds

(April 14, 2003) Despite a market rally in March, mutual fund performance for the first three months of the year was overwhelmingly negative. Ninety-one per cent of Canadian mutual funds lost money in the first quarter of 2003, according to data released today by Morningstar Canada.

“While the war in Iraq boosted U.S. equity markets for March, it wasn’t able to repair the damage done to fund returns earlier in the quarter,” says Morningstar analyst Raju Khatra.

International equity funds had the poorest returns in Q1, losing 16.5%. Precious metals and European equities were off 15%. Canadian equities shed 6% and U.S equities were 9% lower. Even the gold sector, a traditionally safe haven for fund investors, has declined nearly 15% since January.

“The first quarter has been horrible for equity investors,” Khatra concludes.

Only six of Morningstar’s 32 fund indexes were positive in the quarter. Income trusts finished on top, gaining 1.6% over three months, despite a 1.4% decline in March. High-yield bonds, real estate, Canadian and U.S. money market, and Canadian mortgage were also positive, although just barely, averaging a 0.5% return.

Among individual funds, AGF’s Managed Futures was the best of the bunch, climbing nearly 13% in Q1. At the other end of the scale, BMO Precious Metals plunged 24%.

Khatra suggests that a resolution to the Iraq situation may not produce the “relief rally” investors are hoping for, at least in the short term. “U.S. economic data deteriorated sharply in March, casting some doubt as to prospects for the U.S. economy as the war draws to a close,” he says.

Tomorrow, the Investment Funds Institute of Canada releases mutual fund sales figures for the month of March. Preliminary estimates suggest net sales will be flat at best, and perhaps as much as $400 million in the red.

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Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca