TORONTO, Dec. 4, 2012 /CNW/ - Equity funds in Canada focused on domestic equities posted negative returns on average in November, dragged by a struggling natural resources sector. Meanwhile, foreign equity funds, particularly those investing in Asia and Europe, had another month of positive results. Overall, 32 of the 42 Morningstar Canada Fund Indices showed increases in November, including 16 of the 24 indices that measure the performance of equity fund categories, according to preliminary numbers released today by Morningstar Canada.
The best-performing fund index for the month was the one that tracks the Financial Services Equity category, which increased by 2.2%. "This relatively small fund category hinges heavily on the performance of the big Canadian banks, which rose in the second half of November on expectations of positive earnings results. RBC announced its results toward the end of the month, while the others will report in the coming weeks," said Morningstar Fund Analyst Adam Fisch.
At the other end of the performance spectrum were the Natural Resources Equity and Precious Metals Equity categories, whose representative fund indices decreased by 4.3% and 9.2%, respectively. "In the days following the U.S. election, renewed fears about the so-called fiscal cliff led to a drop in the markets, from which more volatile sectors like precious metals and natural resources are yet to recover. Precious metals funds were also hurt by some company-specific news within the gold sector; Barrick Gold revised its guidance toward the low end of expectations, while IAMGOLD results missed analysts' expectations," Fisch said.
Diversified Canadian equity funds benefited from the strength of the financial services sector, which accounts for 31% of the S&P/TSX Composite Index, but the poor showing by the energy and materials sectors—the main components of natural resources funds—resulted in decreases for all five of the broader domestic equity fund indices. The Morningstar Canadian Dividend & Income Equity Fund Index, whose constituent funds are the least reliant on resources and typically contain generous helpings of financials, was the best performer in that group with a 0.1% decrease for the month. The Morningstar Canadian Focused Equity Fund Index, with its higher exposure to U.S. equities, also did relatively well with a 0.2% decrease, while the purely domestic Morningstar Canadian Equity Fund Index was down 1%. The fund indices that track the Canadian Focused Small/Mid Cap Equity and Canadian Small/Mid Cap Equity categories, whose funds tend to be tilted toward resources, were down 1.2% and 2%, respectively, for the month.