The growing global credit crunch squeezed the life out of mutual fund performance in August, Morningstar Canada says.
Just 17 of the investment research firm's 42 fund indices delivered positive returns for the month, as the U.S. subprime mortgage debacle intensified and sparked a crisis in the asset-backed commercial paper (ABCP) market in Canada.
As is typical during times when investor confidence gets shaken, the firm said in a news release Wednesday, bonds outperformed stocks, high-quality bonds beat those of lower quality and large-cap stocks beat smaller ones.
“Overall, the meltdown in the (ABCP) sector that began roiling markets in July continued to drive extreme levels of volatility throughout August among long-term fund categories,” Morningstar Canada analyst Jordan Benincasa said in a news release Wednesday.
One measure of the pressure is that the worst performer of all was the firm's Precious Metals Equity Fund Index, which, far from providing shelter from the storm in stock market storm, plunged 11.54 per cent – and Mr. Benincasa sees the hand of the hedge funds at work.
“Investors should keep in mind that hedge funds are playing a more significant role than usual in stock and commodity prices,” he said. “Hence, this so-called safe haven is becoming awfully crowded with players who can sway the market one way or the other, at least over the short term.”
Even money-market funds were pummelled, with the firm's U.S. Money Market Fund Index managing to eke out a return of 0.07 per cent and its Canadian counterpart delivering just 0.1 per cent, one of its worst performances in the past 25 years.
The firm's Natural Resources Equity Fund Index was the second biggest loser, falling 6.76 per cent, partly because of a build-up of natural gas inventories.
Domestic equity indexes, with their heavy weighting in resource stocks, were also hit hard.
The Canadian Equity Fund Index was down 0.15 per cent, while the Canadian Small/Mid Cap Equity Fund Index slid 3.99 per cent.
On another front, fears the subprime mortgage crisis could trigger a global economic slowdown and hurt Asian exporters hit Asia-centric funds, especially the Japanese Equity Fund Index, which dropped 5.02 per cent.
As for the Asia Pacific Equity Fund Index, July's No. 1 performer with a 5.3 per cent surge, it fell 2.49 per cent in August, while the Emerging Markets Equity Fund Index lost 3.41 per cent.
On the other side of the ledger, even the gainers did not gain much.
The top performer was Real Estate Equity, and it managed to climb only 1.9 per cent, followed by Science & Technology Equity at 1.05 per cent and Health Care Equity at 0.8 per cent.
Returns on bond funds, meanwhile, ranged from 0.18 per cent for the High Yield Fixed Income Fund Index up to 0.67 per cent for the Canadian Long term Fixed Income Index.
