The Canadian equity market outperformed global equity markets in the first quarter of 2014, supported by precious metals and energy companies. Improving corporate fundamentals helped the U.S. equity market gain slightly. Overall, U.S. equities experienced volatility as a result of uncertainty surrounding emerging markets' growth, U.S. economic data, geopolitics and the slowing Chinese economy. Also, company earnings were negatively affected by extreme weather. The U.S. Federal Reserve Board (the Fed) continued to reduce its monthly bond and mortgage purchase program by US$10 billion per month.
Security selection contributed to Fund performance over the period. Significant individual contributors included Magna International Inc., Canadian Natural Resources Ltd. and NXP Semiconductors N.V. Currency effects also contributed to performance.
The Fund's underweight positions in the energy and materials sectors, specifically gold companies, detracted from performance. Significant individual detractors included Citigroup Inc., General Motors Co., Bank of Nova Scotia and Gilead Sciences Inc.
We expect the Fed's continued tapering to affect equity market performance. As tapering continues to have a negative impact on yields, investors may shift assets to equities. We believe that improving global economic conditions will support company earnings, commodity demand and commodity producers. We believe that this, in turn, will benefit Canadian resource companies.