The best investment category now

The best-performing fund index in July was the one that tracks the Greater China equity category, reveals a Morningstar report. The index increased 3.5%. (The report measures the performance of 44 Morningstar Canada fund indexes.)

Funds in the China equity category have been the top performers in Canada so far this year, with an aggregate increase of 21.2% since the year’s start.

The only other sector-diversified fund category to post a positive result in July was emerging markets equity, whose fund index increased 1.1%, while the Morningstar Asia Pacific Equity Fund Index saw no change.

Fund indexes representing three sector-specific equity categories were also among top performers in July:

• natural resources equity (1.8%),
• energy equity (1.3%) and
• financial services equity (0.1%).

While financial services equity has produced positive performance so far in 2017, natural resources and energy equity have been the worst performers for the year to date, with their respective fund indexes decreasing 11.0% and 19.6%.

Canadian and U.S. funds affected by rising rates, loonie

Despite negative results, domestic equity funds were among the best performers. The Canadian equity, and Canadian dividend and income equity, fund indexes both decreased 0.5%, while the Morningstar Canadian Focused Equity Fund Index decreased 0.8%.

The benchmark S&P/TSX Composite Index had a total return of -0.1% for the month despite the country’s three largest sectors — financial services, energy and basic materials — all posting gains. The industrials sector, with a loss of 3.4% for the month, was the biggest contributor to the negative performance.

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The Morningstar U.S. Equity Fund Index decreased 1.2% for the month. Though U.S. stock markets did well in July, with the S&P 500 Index posting a total return of 2.1%, the loonie’s strong appreciation against the greenback more than offset the gains for Canadian investors.

Also suffering from this currency effect was the Morningstar U.S. Small/Mid Cap Equity Fund Index, which was the worst-performing equity fund category with a 2.3% decrease.

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Most fixed income fund categories ended the month in the red, with domestic bond categories being hit hard following the Bank of Canada’s decision to raise its key interest rate on July 12.

The Morningstar Canadian Long-Term Fixed Income Fund Index was the worst performer among all fund categories with a 4.4% decrease, while Canadian Inflation-Protected Fixed Income was down 3.2%.

Two fixed income fund indexes increased during the month: High Yield Fixed Income and Preferred Share Fixed Income were up 0.2% and 1.4%, respectively.

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For a list of all indexes and their performance, consult the report.