January fund performance golden

There’s an old traders’ saying that claims “as goes January, so goes the year.” If that is the case, equity fund investors are going to have a very good 2006. In the first month of this year, seven of Morningstar Canada’s Fund Indices gained more than 6%. Of the 31 fund indices, 29 posted positive returns.

International tensions ranging from Iran’s nuclear ambitions to the future of the U.S. dollar helped propel the Precious Metals fund index to the top of the board, with an impressive 18% gain.

“Gold and platinum are now trading at 25-year highs,” says Morningstar analyst Mark Chow. “Contributing to gold’s strength are geopolitical fears concerning global hotspots like Iran, unrelenting demand from fast-growing economies such as China and India, and rumours that several countries are diversifying their foreign currency holdings to include more gold.”

Commodities based funds turned in a strong showing thanks to continued strength in the price of oil, which hit $68 in January. The Natural Resources fund index gained 11.6%.

“The Iranian government has decided to continue to pursue nuclear capabilities despite protests from the United States and other European countries,” Chow says. “Iran is one of the largest oil exporters in the world and as a member of OPEC, it has called for a reduction in output.”

The Emerging Markets index rounded out the top three with a gain of 9.5%, as the economies of Brazil and Argentina in particular continue to grow at a rapid pace.

“Both countries boasted strengthening currencies as their economic conditions improve,” says Chow. “India, another emerging market, continued to roll along this month with a gain of roughly 6%. Since May of last year, the Sensex Index has risen by about 60%.”

In fact, all of the global or international focused equity fund indices were in the black in January. European Equity gained 4.6%, International Equity was up 3.6% and Global Equity gained 2.8%.

The Asia ex-Japan Equity index gained 6.6%, while the Asia/Pacific Rim Equity fund index gained 4.2%. Japanese equities held the latter index back, as the performance on the Japanese markets took a breather from a torrid December. The Japan index still managed to gain 2.6%.

Closer to home, the Canadian Small Cap Equity fund index posted the best North American returns, with a gain of 7.3%, while U.S. small caps returned 6.2%. The Canadian Equity (Pure) and Canadian Equity fund indices proved that large cap stocks could also fare well, posting gains of 6% and 4.9% respectively. American market continued to lag, however, and the U.S. Equity fund index returned just under 1%.

Fixed income investors struggled to earn a profit, with the High Yield Bond and Canadian Short-Term Bond & Mortgage indices turning in flat performances. The only two categories to slip into the red were the Foreign Bond and Canadian Bond fund indices with both losing less than 1%.

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