Foreign equity mutual funds were the top performers in the first quarter (Q1), according to preliminary performance data published on Tuesday from Toronto-based Morningstar Research Inc.
Nineteen of the 44 Morningstar fund indices increased during Q1, including eight indices that increased by 1% or more.
The best performer among the indices during Q1 was the one that tracks the Greater China equity category, with a 4.1% increase. The fund index had an exceptional month in January, increasing 8.7%, but was in the red for the two subsequent months, decreasing 2.5% in February and 1.7% in March.
Fund returns in that category were heavily influenced by currency effects, with the Canadian dollar depreciating 6% against the Chinese renminbi and 2.3% against the Hong Kong dollar during Q1, which is beneficial for Canadian investors in foreign securities, Morningstar says in a news release.
Other fund indices that focus on stocks in the Asia/Pacific region also performed well in Q1, including Asia Pacific equity and Asia Pacific ex-Japan equity, which both increased 2.7%, as well as emerging markets equity, which increased 3.7%.
European equity funds also benefited from favourable currency movements, with the loonie depreciating 5.1% against the euro and 6.3% against the U.K. pound. This was enough to counter the negative performance of European stock markets, which saw the U.K.’s FTSE 100, Germany’s DAX Index and France’s CAC 40 drop 8.4%, 6.4% and 2.7%, respectively, during Q1. As a result, the European equity fund index remained in positive territory with a 0.2% increase for the three-month period.
In the United States, the S&P 500 index saw its strong gains from January erased by steep declines in February and March and ended Q1 down 0.8%. For Canadian fund investors, however, that market performance combined with the loonie’s 2.7% decline against the U.S. dollar translated into an average gain of 1.1% for funds in the U.S. Equity category.
In Canada, the S&P/TSX composite index started the year with three months of negative performance, resulting in a 4.4% decrease for the Canadian equity fund index over Q1. While the energy sector rebounded in March, the three largest sectors in the Canadian market — financial services, basic materials, and energy — suffered steep losses in February that they were unable to recuperate by the end of the quarter.
The worst-performing fund indices in Q1 were precious metals equity, natural resources equity and energy equity, which decreased 5.7%, 6.1% and 6.7%, respectively.
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.