Midyear performance statistics show that risk-taking has ruled the Canadian mutual fund roost for the first half of 2009, as volatile, cyclical asset classes have thrived at the expense of more defensive market segments.
Data from Globe Investor for the year to date ended June 30 show 20-per-cent-plus returns in pro-cyclical Asian and emerging-markets funds as well as resource funds, a testament to the growing investor confidence that the economic and financial market woes that handcuffed markets through the fall and winter are on the mend.
Conversely, many of the traditional defensive asset classes, such as fixed income, money markets and health care, have posted returns well below those of the overall Canadian equity market. The U.S. dollar's slide has also weighed down U.S. equity fund returns this year.
"Anecdotally, in conversations with [investment] advisers, I know there's a heightened appetite for risk," said Dave Paterson, independent mutual fund analyst at Paterson & Associates. He said investors have come out of their defensive shells and are seeking assets offering better returns after seeing their portfolios absorb deep losses during the downturn.
Mutual funds investing in the Chinese market, where resurgent economic growth is expected to dwarf that of the developed world this year and next, posted returns of nearly 30 per cent in the first six months of this year. China's healthy appetite for commodities in the first half helped fuel gains in resource sector funds, as well as for funds investing in the broader Canadian equity market, which has a heavy natural resource component.
Mr. Paterson said the solid performance in two pro-cyclical Canadian market asset classes - resources and technology - are just what you'd expect to see in a fund market emerging from a recession.
"I would think that those will be the sectors that will lead us out of this," he said.
In June itself, a respite in the U.S. dollar's slide weighed on the recently high-flying precious metals fund segment.
Precious metals equity funds, which had led the Canadian mutual fund industry with a stunning 22-per-cent return in May, faltered to a 5.5-per-cent decline in June, the worst performance among fund asset classes in the month. The reversal in gold equity funds reflects a modest downturn in bullion prices, as the U.S. dollar recovered some of its deep spring losses that had sparked much of gold's rally.
Meanwhile, funds that invest in U.S. equities had relatively strong June returns, helped by the greenback's improved exchange rate relative to the Canadian dollar.
The monthly data also suggested that investors continued to shift out of traditionally defensive sectors, including gold, and into more risky cyclical assets. This confidence contributed to superior gains among several classes of Asian and emerging-market funds, as well as technology, small-capitalization and real estate stocks.
But natural resources equity funds weren't among the beneficiaries, as the rally in oil and other key commodities stalled. The group, which had average returns of 14 per cent in May, slipped 2.9 per cent in June.
How the funds fared
|Group average for all asset class as of 30 Jun, 2009|
|TOP 10||Effective Date||Group Avg. YTD|
|Greater China Equity||30-Jun-2009||29.2%|
|Emerging Markets Equity||30-Jun-2009||27.9%|
|Precious Metals Equity||30-Jun-2009||27.5%|
|Natural Resources Equity||30-Jun-2009||23.8%|
|Asia Pacific ex-Japan Equity||30-Jun-2009||20.9%|
|Science and Technology Equity||30-Jun-2009||18.3%|
|Canadian Focused Small/Mid Cap Equity||30-Jun-2009||17.6%|
|Canadian Small or Mid Cap Equity||30-Jun-2009||17.4%|
|High Yield Fixed Income||30-Jun-2009||14.0%|
|Health Care Equity||30-Jun-2009||1.4%|
|Canadian Long Term Fixed Income||30-Jun-2009||1.3%|
|Real Estate Equity||30-Jun-2009||1.0%|
|Canadian Money Market||30-Jun-2009||0.3%|
|U.S. Money Market||30-Jun-2009||0.2%|
|Global Fixed Income||30-Jun-2009||-1.4%|
|Retail Venture Capital||30-Jun-2009||-3.1%|
|Average for all funds regardless of asset class||30-Jun-2009||6.9%|
|S&P 500 composite||30-Jun-2009||1.8%|
|S&P/TSX composite index||30-Jun-2009||15.4%|
© 2007 The Globe and Mail. All rights reserved.
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