Economic News/Trends and Analysis — June 2, 2009

Most Equity Funds Bloomed in May, Morningstar Data Show

    TORONTO, June 2 /CNW/ - Optimism that the worst of the economic recession
is over helped boost market performance in May as equities rallied strongly
for a third consecutive month. While there were relatively small losses for
four of the 24 Morningstar Canada Fund Indices that track equity funds, the
top three indices registered double-digit gains, according to preliminary
performance today released by Morningstar Canada.
    By far, the top performer was the Morningstar Precious Metals Equity Fund
Index, which advanced 23% in the month, largely thanks to a strong rally in
gold. Gold prices rose by 10% for the month, bringing the spot price up to
US$975-a level last seen in late February. Silver also had a tremendous run.
"The weakening U.S. dollar and inflationary concerns stemming from the
printing of stimulus money have supported the upward momentum for these
precious metals, which are often viewed as an inflation hedge," said Nick
Dedes, fund analyst for Morningstar Canada.
    The natural resources sector also benefitted from the rebound in investor
confidence, with an upswing of nearly 30% driving the price of crude oil past
US$66 per barrel in May. The Natural Resources Equity Fund Index rose 13.6% in
the month. "Although recent data suggested some decline in U.S. total
petroleum inventories, the rally still appears to have more to do with an
increasingly favourable economic outlook and positive investor sentiment than
a recovery in the demand for oil," Dedes said.
    Ranking third after precious metals and natural resources funds, the only
other Morningstar fund index to post a double-digit gain was the
sector-diversified Canadian Equity, which, in part, rode the commodities
resurgence to a 10.8% return. "The Canadian equity market stood out with its
robust performance backed by a strengthening loonie and rising commodity
prices," Dedes said.
    Indices that track various segments of the Canadian equity market
dominated the top 10 list, including gains of 8.1% for Canadian Focused
Equity, 8.5% for Canadian Income Trust Equity, 9.5% for Canadian Small/Mid Cap
Equity, and 9.6% for Canadian Focused Small/Mid Cap Equity. The Canadian
Dividend & Income Equity Fund Index rose 7.9%.
    Meanwhile, the Emerging Markets Equity Funds Index ranked sixth after
holding fourth place in the rankings of the previous two months. The sector,
which has been particularly hard-hit by the global economic slowdown,
continued its strong rebound-the fund index gained 10.9% in March and 10.6% in
April-with a return of 8.9% in May.
    In all, just seven of the 44 Morningstar fund indices ended the month in
negative territory, with some of the biggest losses prompted by currency
changes. The worst performance, a decline of 3.3%, came from US Small/Mid Cap
Equity, while the more broadly based US Equity index fell 1.9%. "The U.S.
dollar depreciated roughly 8% against the Canadian dollar and saw similar
declines relative to other major currencies, including the Euro and the
British Pound," Dedes said. "The movement likely reflects concerns over the
U.S. dollar's traditional safe-haven status as well as a growing risk appetite
on the part of investors, who are moving out of U.S. Treasuries and back into
equities."
    Two sector-specific indices-Health Care Equity and Science & Technology
Equity-had losses. While Health Care funds were down a modest 0.9%, Science &
Technology funds saw a loss of 3.2% in May, marking a stark reversal of the
trend in March and April when the index gained 9.2% and 8.8%, respectively.
    For more on May fund performance, go to www.morningstar.ca.
    Morningstar Canada's preliminary fund performance figures are based on
the change in funds' net asset values per share during the month, and do not
necessarily include end-of-month income distributions. Final performance
figures will be published on www.morningstar.ca next week.

    About Morningstar

    Morningstar Research Inc. is a Canadian subsidiary of Chicago-based
Morningstar, Inc., a leading provider of independent investment research. The
company offers an extensive line of Internet, software, and print-based
products and services for individuals, financial advisors, and institutions.
    Morningstar provides data on more than 300,000 investment offerings,
including stocks, mutual funds, and similar vehicles, along with real-time
global market data on more than 4 million equities, indexes, futures, options,
commodities, and precious metals, in addition to foreign exchange and Treasury
markets. The company has operations in 19 countries and minority ownership
positions in companies based in three other countries.

For further information: Nick Dedes, Fund Analyst, Morningstar Canada,
(416) 484-7823; Rudy Luukko, Investment Funds Editor, Morningstar Canada,
(416) 484-7825

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