A weaker Canadian dollar, coupled with strong market returns, powered the performance of foreign equity and fixed-income funds in October, according to preliminary performance data released Thursday by Toronto-based Morningstar Research Inc.
All but one of the 44 mutual fund indices rose during the month, with a majority of the indices increasing between 2.0% and 4.0%, and nine indices increasing by more than 4.0%.
The Canadian dollar depreciated significantly versus many world currencies in October, approximately 2% against both the euro and the U.K. pound, and more than 3% against the U.S. dollar and most major Asian currencies, Morningstar notes.
The weaker loonie contributed to the strength of he best-performing fund index for month, Asia Pacific Equity category, which increased 7.7%. Along with the currency effect, funds in this category benefited from strong gains by Japanese stocks, with the Nikkei 225 index gaining 8.1% for the month when measured in local currency. South Korean stocks, which on average account for 10.7% of fund assets in this category, were also a major contributor, with the KOSPI composite index gaining 5.4% and the South Korean currency appreciating by 5.9% against the loonie.
The Asia Pacific ex-Japan equity fund index was the second-best performer in October with a 7.1% increase. Funds in this category typically hold a majority of their assets in stocks from South Korea and Greater China; indices tracking the Shanghai, Hong Kong, and Taiwan stock markets were up 1.3%, 2.5%, and 4.5%, respectively, for the month.
The Greater China equity fund index was the third-best performer with a 6.6% increase, while the Emerging Markets equity fund index was fourth with a 5.4% increase.
The U.S. equity fund index increased 4.7% for the month, ranking fifth overall. This performance reflected a 2.3% total return for the S&P 500 index and the appreciation of the U.S. dollar against the loonie. The fund index tracking the U.S. small/mid cap equity category was up 3.4%.
Canadian stocks had a solid month in October, as the S&P/TSX composite index broke through the 16,000 mark for the first time and ended the month with a 2.7% total return. However, without the benefit of currency effects, funds that invest in domestic equities underperformed their foreign peers.
The Canadian equity fund index surpassed the benchmark with a 2.9% increase for the month, while the Canadian focused small/mid cap equity fund index increased 3.1%. The other three domestic equity fund categories — Canadian dividend and income equity, Canadian focused equity, and Canadian small/mid cap equity — all increased 2.7%.
The worst-performing equity fund indices were all sector-fund trackers. The worst overall, and the only fund index to post a negative result in October, was Precious Metals equity, which decreased 2.2%. Energy equity was up 1.4%, while Real Estate equity, Global Infrastructure equity, and Natural Resources equity all increased 2.4%.
Morningstar Canada’s preliminary fund performance figures are based on change in funds’ net asset values per share during the month, and do not necessarily include end-of-month income distributions. Final performance figures will be published on next week.
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