Asian equity funds led in 2017: Morningstar

Markets such as China, Korea, and Japan drove double-digit advances in Asian equity categories

Asian equity funds led in 2017: Morningstar
If your clients didn’t believe in the value of portfolio diversification before, new mutual-fund data from Morningstar Canada might change their minds.

According to preliminary data from the research firm, 41 out of its 44 fund indices increased over the 2017 calendar year. Twelve of the indices increased by 10% or more; three of the top-performing categories covered equity markets in Asia.

The top performer, the Greater China Equity index, posted a 35.9% increase, mirroring a 36% rise in Hong Kong’s Hang Seng Index; currency-hedged funds under the index are expected to outperform their non-hedged peers in 2017.

Because of double-digit advances from stock exchanges in Korea, Japan, and Taiwan, the Asia Pacific Equity and Asia Pacific ex-Japan equity categories were among the top performers of 2017, posting increases of 24.9% and 25.7%, respectively. Surging Asian stocks also helped boost the Emerging Markets Equity category by 24.3%.

Funds focused on the west gained less spectacularly. The Morningstar European Equity Fund Index rose 14.6% for the year; the US Equity Fund Index, handicapped by the loonie’s 7% appreciation against the greenback, gained 13.2%.

Growth in domestic equity funds was even more muted, with the Canadian Equity Fund Index increasing by 7.7%. Indices tracking the Canadian Dividend & Income Equity and Canadian Small/Mid Cap Equity categories were up 7.9% and 3.2%, respectively. Looking at Canada’s three largest stock sectors 2017 performance, financial services and basic materials saw returns of 13.3% and 7.7%, respectively, while energy lost 10.6%.

The bottom performers among equity fund indices, the Natural Resources Equity and Energy Equity categories slipped by 3.4% and 13.1%, respectively. The losses were attributed to heavy declines in oil prices during the first six months of 2017, from which funds under the two buckets only partly recovered.

As for fixed income, seven out of eight fund indices rose last year in spite of interest-rate hikes by central banks in many countries, including Canada and the US. The Preferred Share Fixed Income Index led with a 14.1% increase. Despite being among the categories most sensitive to interest rates, the Canadian Long Term Fixed Income Index finished the year with a 6.3%, suggesting that the market was braced for more meaningful rate hike from the Bank of Canada.

The Canadian Inflation-Protected Fixed Income Index was the only fixed-income category to go down, slipping by 0.03%.

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