Road to recovery?: Mutual fund performance turns positive

(May 14, 2003) In a dramatic reversal, 90% of Canadian mutual funds posted positive returns in April as war worries receded and corporations reported strong quarterly earnings. The performance numbers, released today by Morningstar Canada, show a marked improvement from the first quarter of the year, when 91% of funds were in the red.

“The end of the war in Iraq was topped off by strong earnings reports,” says Morningstar fund research manager Gareth Tingling. “Both helped restore confidence and boost markets.”

Twenty-six of the 32 fund indexes tracked by Morningstar gained ground last month, paced by the Latin American Equity Fund index and the European Equity Fund index. Among the large fund categories, Canadian Equity, which mirrors the TSX, gained nearly 4% and Canadian Balanced was up about 3%.

The U.S. Equity Fund Index climbed nearly 6%, although its gains were tempered by the surging loonie. “When our dollar slides up, Canadian returns on U.S. investments fall back,” Tingling says.

At the bottom end of the scale, the Japanese Equity Index lost 2.9% and Precious Metals fell 1.2%.

Bonds also performed well last month with Morningstar’s High Yield Bond index rising 2.9%. Government bonds also gained ground. Tingling says investors who believe that interest rates will remain low are buying long-term government bonds. Interest in government bonds from foreign investors, attracted by the strong Canadian economy, may also be playing a part, he adds. (Click here for a PowerPoint presentation that will help you explain the basics of bonds to your clients.)

Despite the performance turnaround, investors remain reluctant to commit to mutual funds. IFIC reports its final April sales figures tomorrow. Preliminary estimates suggest net redemptions could reach $1.6 billion, the largest monthly outflow in four years.

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