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Morningstar reports positive Q3 performance for E.M., European, international equity funds

Monday, October 19, 2009
From the Opalesque team: Morningstar, Inc. has reported the positive performance of its foreign equity funds domiciled in Europe and Asia in the third quarter.

In a statement (Source), the investment research firm said the Morningstar Emerging Markets Equity Fund gained 12.3% for the quarter, while European Equity and International Equity were up 12% and 10.5%, respectively, preliminary data indicated.

Morningstar, an international data provider, said the preliminary results fell short of expected returns posted in local currency terms by market indices including the UK's FTSE 1000 (20.8%), France's CAC 40 (20.9%), and Mexico's IPC (20%) because the Canadian dollar appreciated significantly against many currencies including the UK pound (11.4%), the euro (3.9%), and the Mexican peso (11%).

The Morningstar U.S. Equity Fund posted a 7% return for the quarter, which was half of the benchmark S&P 500 Index (15.6%) due to the weakness of the U.S. dollar at that time.

Fixed income categories hit double-digit returns

The Morningstar High Yield Fixed Income Fund Index, whose constituent funds invest in lower quality issues, had its second consecutive double-digit quarterly return with a 10.3% gain, while, the more conservative bond categories also registered positive returns.

“Reflecting the market's renewed appetite for risk were the performances of the various fixed income categories. Investment funds that focus on small-capitalization equities and those that target specific sectors dominated the performance rankings in the third quarter of 2009, as investors continued to reinvest their cash in riskier assets as they did in the second quarter,” said company analyst Christian Charet in the commentary.

The fixed income markets continued to show signs that confidence is returning, as a number of new issues came to market and credit spreads closed.

The only fund indices that failed to gain ground in the third quarter were Greater China Equity, down 0.5%, and Japanese Equity, down 3.1%.

Funds tracked went down

Industry consolidation continued to gather pace throughout the third quarter. The universe of European-domiciled funds continued to contract, with fund closures in 2009 surpassing fund launches for the first time since the start of the credit crunch.

From the 38,238 funds in European domiciles tracked by Morningstar as of 1st January 2009, approximately 2,968 have closed, while 1,560 funds have been launched. At the current rate of contraction, a total of 3,957 funds are projected to close by year-end, with new launches of 2,080 funds projected. That equates to net closures of 1,877 funds - roughly five per cent of the European domiciled fund universe.

“The industry is showing signs of significant contraction and while we believe this is for the best, we also believe there are significant dangers to investors,” said Christopher Traulsen, CFA, director of fund research for Morningstar Europe and Asia. “During the boom years we saw too many funds launched in an attempt to grab assets, and many funds were unable to gain economies of scale and have had to pay high fees for distribution. This has led to high costs for fund investors."


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