Safiya Burton, Contributor
Safiya Burton
Only three of the 31 Morningstar Canada Fund Indices managed to stay afloat during the second quarter of the year, according to preliminary data on investment fund performance released by Morningstar Canada on July 6.
Morningstar Canada, that country's leading provider of independent mutual fund data and research stated: "On the heels of a dismal month of May that saw broad-based losses across all equity and most fixed-income categories, June brought little relief for investors, though the bleeding was less severe. Thirteen indices were in the black for the month, however, most of the gains were less than one per cent.
The Morningstar Fund Indices measure the dollar-weighted return of assets in Canadian investment funds for each of the 31 industry fund categories. The Canada Real Estate Fund Index had the highest return for the three months ended June 30 with a 3.5 per cent gain, while at the bottom of the list was the Science and Technology Fund Index with a loss of 10.8 per cent.
Canadian equities, although affected, did not suffer as much as their foreign counterparts.
In commenting on the markets, Peter Harrison, senior vice- president of Canadian Equities for Montrusco Bolton Investments Inc. was quoted in a recent article published in Canada's Globe and Mail newspaper as being bullish on the Canadian market, despite the recent downturn. He still expects the S&P/TSX composite index, which is up 4.1 per cent so far in 2006, to show a gain of about 10 per cent for the year as a whole.
He sees the market moving sideways to slightly down in the summer. But then in the fall, "the fundamentals will come back into play," pushing the market higher. He said the Federal Reserve Board's decision last week to raise U.S. interest rates by 25 basis points, and to adopt a less hawkish tone in its comments, has lessened the degree of uncertainty in the market somewhat, adding to the comfort level in his forecast.
NO ONE WILL EVER KNOW
The truth of the matter is, however, that no one will ever know with absolute certainty the direction of the markets. As I have stated on numerous occasions, investors should not invest in mutual funds unless their time horizon exceeds three years. I recently had an opportunity to speak with Ray Chang, Jamaican-Canadian businessman and Chairman of CI Financial, one of Canada's leading mutual fund companies. His advice to investors is simple and straightforward: "Don't let emotions get in the way. I know of no one who has consistently beaten the market by focusing on the short term and trading the market. Markets will generally reflect fundamentals. Over the long term, equity markets generally outperform. Economies have and will continue to grow." Mr. Chang continued: "In fact, I tell my clients that if they think they will need to draw from their investment account, to give me at least a six-month head start. It is generally easier to forecast the general trend of markets than to predict what they will do in the short term."
Safiya Burton is an assistant vice-president at First Global Financial Services Limited. For further information, please call her at 926-1275 or email safiya.burton@gkco.com
