Preliminary 2016 year-end performance data released by Morningstar Canada shows that 39 out of the 44 fund indices it monitors increased during the calendar year, with 10 of them exhibiting growth of 10% or more.
The S&P/TSX Composite Index posted a return of 21.1%, reflecting the best calendar-year performance for Canadian stocks since 2009. Five domestic equity fund indices tracked by Morningstar all took a place among the best performers: the Morningstar Canadian Focused Equity Fund Index gained 11.8%, while the Morningstar Canadian Dividend & Income Equity Fund Index rose by 17.9%.
Canada’s three biggest sectors – financial services, energy, and basic materials – captured handsome gains of 24.2%, 39.6%, and 41.2%, respectively. The highest gains were observed in indices tracking sector-specific fund categories: Precious Metals Equity (54%), Natural Resources Equity (41%), Energy Equity (36.1%), and Financial Services Equity (24.3%).
Most foreign-equity fund categories found their gains dampened by currency effects as the loonie appreciated against many of the world’s major currencies: it gained 6.1% against the euro and 23.2% against the UK pound. The negative impact was most pronounced in the European Equity category, where funds suffered a cumulative loss of 5.5% despite strong market performance from France, Germany, and the UK. European Equity funds were thus pushed to the bottom of the 2016 performance table.
A similar phenomenon manifested for funds in the US Equity category: despite the S&P 500 Index gaining 12%, the Morningstar US Equity Fund Index rose just 6.4%, having been weighed down by the Canadian dollar’s appreciation of 3.1% against the greenback.
While all eight fund indices tracking fixed-income categories rose in 2016, many of them dipped in the fourth quarter. This is particularly true for the two categories most sensitive to interest rates, Canadian Long Term Fixed Income and Canadian Inflation-Protected Fixed Income, whose last-quarter losses pulled their year-end returns down to 1.7% and 1.8%, respectively. The best performing fixed-income fund indices couldn’t break into double-digit territory: the High Yield Fixed Income, Floating Rate Loans, and Preferred Share Fixed Income indices increased 9.1%, 8.0%, and 7.1%, respectively.
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