Gold funds sparkled in September

(October 4, 2005) Commodity based investment funds again posted the largest returns in September, as the hurricanes slamming into the U.S. Gulf Coast sent investors scrambling for safety, according to the latest performance data from Morningstar Canada.

While energy investments also did well, the best performance was in the precious metals sector, which surged 11.6% as the price of gold spiked above $470 US an ounce. The overall Natural Resource fund index was a distant second place, returning 6.8%, boosted by both gold and natural gas, though the price of crude dropped.

“Although the price of crude oil retreated to$66 US a barrel toward the end of the month — after Hurricane Rita did less damage than expected to Gulf Coast refineries — natural gas prices continued to rise ahead of the winter home-heating season,” says Morningstar Canada analyst Brian O’Neill.

Across the spectrum of funds, 22 of Morningstar’s 31 fund indices were on the rise. Aside from resources, emerging markets funds and Japanese equity funds led the markets.

Japan’s stock markets surged ahead in September following the re-election of Prime Minister Junichiro Koizumi. The election essentially served as a plebiscite on his pro-business economic reform program. Morningstar Canada’s Japanese Equity Fund Index gained 6.5% in the month.

Canada’s ever-growing energy sector continued to fuel growth in the Canadian equity fund indices. The Canadian Equity (Pure) index gained 3.3%, while the Canadian Dividend and Canadian Small Cap Equity indices each gained 2.6%.

The effects of the energy rally were felt in some foreign investment indices, as the rising petro-dollar wiped out returns. The Foreign Bond and High Yield Bond indices lost lost 2.9% and 1.6%, respectively, while U.S. Equity and European Equity each lost 1.3%.

Despite the top ranking in September, the Precious Metals fund index hangs in the middle of the pack on a year to date basis, with a 6.9% gain. Precious metals tends to be one of the most volatile sectors.

The Natural Resources index remains the best performing index on a year to date basis, rising 41.5% as commodities have rallied. Canadian Equity (Pure) ranks a distant second place, with a return of 20.2% over the same nine months, although it is in a virtual dead heat with Emerging Markets Equity, which is up 20.1%.

The high-flying Income Trust index has slipped somewhat of late, following rumblings from Ottawa that it would address the tax leakage issue. September’s 1.7% gain in this index lagged other Canadian indices, but overall, the trust index is still 17.8% higher year to date and nearly 30% on an annual basis.

Thanks to the surging dollar and the continued commodity rally, domestic equity funds have outperformed this year. The Canadian Small Cap Equity, Canadian Equity and Canadian Dividend fund indices all posted year-to-date returns above 13%.

The soaring loonie has not been so kind to the Foreign Bond index, which has fallen 5.1% to take last place on the performance tables. Only two other fund indices have negative year to date returns, as Science and Technology is down 2.5% and U.S. Equity has dropped 0.8%, matching the weakness in the major American indices.

In fact, the U.S. markets are the only major markets to remain in negative territory on the year, with European indices, Japan’s Nikkei and the S&P/TSX Composite Index all posting double digit positive returns.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com