Rising world markets help most Canadian equity mutual funds to solid gains in June

By The Canadian Press

TORONTO - A generally positive performance in world equity markets and a weakening Canadian dollar were key factors in producing solid returns for most Canadian equity funds in June for a fourth consecutive month, Morningstar Canada says.

Forty of the 43 Morningstar Canada fund indexes gained, with foreign equity categories dominating the top rankings, the fund-tracker said Friday in a news release.

However, the Health Care Equity Fund Index was the top performer, with a 10 per cent gain, its first double-digit monthly return in nearly nine years.

"Health care equities appreciated in the latter half of the month, coinciding with U.S. Senate discussions on health care reform," said Nick Dedes, fund analyst for Morningstar Canada.

"Within the sector, we saw pharmaceuticals advance meaningfully, likely at the prospect of millions of currently uninsured individuals eventually gaining access to prescription drugs under the proposed reform plan."

All 12 fund indices that track foreign equity categories posted above-average gains in June, with returns ranging from 8.7 per cent for the Japanese equity fund index (second overall) to 3.7 per cent for the European equity index, which ranked 16th overall.

Foreign equity funds - particularly those that focus on Asia - benefited from strong market returns in China and Japan, but it was the loonie's steep depreciation against virtually all major currencies that contributed the bulk of their returns, Morningstar said.

In the United States, the S&P500 Index was mostly flat when measured in U.S. dollars, gaining just 0.2 per cent. But the U.S. dollar's six per cent increase against the loonie resulted in gains of five and 6.6 per cent for the U.S. equity and U.S. Small/Mid Cap Equity fund indices, respectively.

In Europe, gains of over five per cent for the euro and eight per cent for the pound against the Canadian currency allowed European equity funds to also show positive returns despite the fact that major benchmarks in France, Germany and the United Kingdom posted losses of between 2.7 and 4.2 per cent.

Most domestic indices had positive results, led by the Morningstar Canadian Dividend & Income Equity Fund Index, which was up 2.7 per cent. The more broad-based Canadian equity category returned 0.1 per cent reflecting a minimal gain of the S&P/TSX composite index of 0.3 per cent for the month.

The worst-performing fund index in June was Precious Metals Equity, which lost six per cent. "The greenback strengthened during the month, which weighed on U.S. dollar-denominated precious metals such as gold, platinum, and silver and lessened their attractiveness as a store of value," Dedes said.

The other two fund indices in the red were Natural Resources Equity, down 2.4 per cent and the Canadian Small/Mid Cap Equity, down 0.3 per cent.