Mutual funds that focus on overseas equity outperformed those that target Canadian or U.S. stocks in May, according to preliminary performance data released Friday by Toronto-based Morningstar Research Inc.

Twenty-six of the 44 Morningstar Canada fund indices increased during the month, including four indices that increased by more than 2%.

North American stock markets had muted performance during the month of May, and currency movements were minimal, Morningstar notes.

As a result, the best performer among the indices was the one that tracks funds in the Greater China equity category, which increased 3.2%. Hong Kong’s Hang Seng index was up 4.2% for the month, but part of that gain was offset by a 1.4% depreciation of the Hong Kong dollar versus the Canadian dollar. Stocks in Taiwan also fared well with a 1.7% gain, but the Shanghai Composite Index lost 1.2% in May.

Positive results in China also benefited the more broadly diversified Asian equity funds, as did a strong showing by South Korean stocks, which were up 6.4%. The Asia Pacific ex-Japan equity and Asia Pacific equity fund indices increased by 1.6% and 1.2%, respectively.

The second-best-performing fund category in May was European equity with a 2.9% increase. The U.K.’s FTSE 100 index was up 4.4% for the month, and while major markets in France and Germany saw little movement, the euro’s 1.8% appreciation against the loonie also contributed to the strong performance of funds in this category.

In the United States, the S&P 500 index had a total return of 1.4%, which was offset by the loonie’s 1.2% appreciation against the U.S. dollar. As a result, funds in the U.S. equity category produced an aggregate gain of 0.3%. The U.S. small/mid cap equity fund index decreased 0.3% for the month.

In Canada, the S&P/TSX composite index produced a total return of -1.3%, as each of the country’s three largest stock sectors had negative performance. The energy, materials, and financials sub-indexes lost 5.6%, 2.2%, and 2.0%, respectively. Funds in the Canadian equity category marginally outperformed the benchmark with a 1.2% decrease. The Canadian focused equity fund index performed slightly better with a 1.1% decrease, while funds in the Canadian small/mid cap equity decreased by 0.6%.

As was the case in April, the worst performers in May were fund indices that track sector-specific categories. energy equity, natural resources equity, and financial services equity decreased 4.6%, 3.3%, and 2.1%, respectively, while precious metals equity was down 1.1%.

Fixed-income funds were mostly positive in May, with increases for seven of the eight categories ranging from 0.1% for the Canadian short term fixed income fund index to 1.7% for the Canadian long term fixed income fund index. The only category in the red was preferred share fixed income, whose fund index decreased 2.0%.

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 next week.

Photo copyright: nonwarit/123RF