Investing January 15, 2003

Morningstar: Shining Star (Funds) Don't Always Stay Bright

January 15, 2003 (PLANSPONSOR.com) - Chasing hot mutual fund categories doesn't necessarily pay off in the end, Morningstar Canada said in a new report.
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For example, Morningstar said an investment of   $1000 on January 1, 2000 in Science and Technology would have been worth just $271 on December 31, 2002. The fund category had a median calendar year return of 99.7% for 1999.

Likewise Asia/Pacific Rim returns hit the stratosphere in 1993 with a 90.4% median return. However, a January 1, 1994 investment of $1,000 in that category would have left $570 on December 31, 2002, Morningstar said.

Generally, Morningstar said the Precious Metals category continued to outshine all others with a December Morningstar Index return of 28.4% and one-year return of 94.2%.

For 2002, Morningstar’s holdings data shows that the Precious Metals category returns were boosted by dramatic performance among junior gold companies such as top holdings Eldorado Gold Corp and FNX Mining Co.

Coming a distant second behind the Precious Metals Fund Index, for the month and the year, was the Natural Resources Fund Index with an 8.6% return for December and 16.1% for 2002. The Foreign Bond Fund Index occupied the third position with a 4.9% return in December and 14.1% for the year, Morningstar reported.

Canadian Equity Fund Categories’ Performance

Among Canadian equity categories:

  • the Canadian Small Cap Equity Fund Index was on top for December with a 1.4% gain (-6.8% for year end 2002)
  • the Canadian Dividend Fund Index returned 1.1% (-3.5% for 2002)
  • the Canadian Large Cap Equity Fund Index was third at 0.6% (-12.6% for 2002)
  • the more diversified Canadian Equity Fund Index lost 0.3% (-12.2% for 2002).

At the bottom of list, the Science and Technology Fund Index lost 11.7% in December. The index for Asia Ex-Japan Funds was next at -5.7% and the US Small and Mid Cap Equity Index was third worst at -5.3%. For the year, the Science and Technology Fund Index was again at the bottom, losing 41.9% . Next were the Healthcare Fund Index (-29%) and US and Mid Cap Equity Fund Index (-26.1%).

Morningstar Canada’s 2002 survey covered nearly 4,500 mutual funds.

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