Fund returns sour in April

April was a rough month for equity mutual funds, with only four of Morningstar’s 22 Canadian equity-based fund indices gaining ground. Fortunately, the most widely held category—balanced funds—were only slightly negative.

Hardest hit was the precious metals fund category, which posted a hefty 7.3% decline. It’s the third month in a row that the group has been at the bottom of the heap, as the price of gold has fallen.

“A number of economists expect movements in the price of bullion to remain in large part tied to decisions around monetary policy stimulus from the Fed or European Central Bank in the near-term,” says Morningstar Fund Analyst Nick Dedes. “With no immediate indications of additional quantitative easing from the recent Federal Reserve open market statement, the price of gold has continued to drop.”

The second worst performance paled in comparison, as the Japanese equity fund index fell 3.9%. The returns could have been even worse, as the Nikkei 225 fell 5.6% over the month, but the blow was cushioned by the rising value of the yen versus the loonie.

The broad Canadian equity category declined only 0.6%, dragged down by the large natural resource component. The focused Natural Resources Equity group fell 3.7%, making it the third worst performer.

Investors were punished for venturing outside of Canada, as European equity, emerging markets equity, global equity, and international equity categories, all declined by more than 2.2%.

“Concerns about Europe weighed heavily on global equities, specifically with Spain in the spotlight following downgrades to its sovereign debt rating and the credit rating of several Spanish banks,” says Dedes. “The list of countries in the region with shrinking economies continues to lengthen.”

The best performing index of the month was the real estate group, which posted a gain of 3.5%.

“The relative attractiveness of REIT distributions continues to draw yield-seeking investors to these securities. Improvements in occupancy rates, along with low Canadian bond yields pushing down capitalization rates, have also bolstered the sector’s performance,” Dedes said.

The Greater China Equity Index rose 1.6%, while and Health Care Equity rounded out the top three with a paltry 0.2% gain.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.