Metals, resource funds roared back in March

Investors in precious metals funds enjoyed a golden age of double digit returns in March, more than making up for poor performance in February, as these funds closed out the first quarter with a chart-topping month, according to preliminary data from Morningstar Canada.

“Precious metals prices again ascended in March and have by and large outshined oil,” said Morningstar analyst Mark Chow. “But although gold traded at highs not seen in over 25 years, it has been overshadowed this year by the price of silver, which rose nearly 20% in March.”

The rally in silver comes as investors look ahead to the launch of a new silver-backed ETF, which is expected to further drive up demand for the metal. Prices for platinum, copper and zinc, are also at or near all-time highs, Chow said.

All together, the metals rally drove the Morningstar Canada Precious Metals Fund Index higher by 13.7% in March, ending the first quarter with an industry-leading return of 29%.

Volatility in the metals sector reflected similar swings in the larger Natural Resources index, which ranked second best in terms of performance with a gain of 7.6% in March and a quarterly return of 11%.

Precious Metals were not alone in achieving double-digit gains in the first quarter, as the Emerging Markets Equity fund index returned 13.6% over the same period. European Equity ranks third with a quarterly gain of 11.8%, followed by Asia Ex-Japan Equity and U.S. Small and Mid Cap Equity with gains of 11.6% and 11.2%, respectively.

By and large, it was a good month to be invested in Canadian mutual funds, with 13 indices posting returns in excess of 4% — and only one of all 31 indices Morningstar tracks losing ground. The Canadian Bond fund index dropped 0.6% in March, taking its first quarter return down to -1.0%. The only other fund index in the red on a year-to-date basis is the Foreign Bond group with a 0.9% drop.

Foreign equity funds mounted a strong rally in March, with the European Equity fund ranking third overall with a gain of 6.5%. The Japanese Equity and Asia/Pacific Rim Equity indices were not far behind with gains of 6.4% and 6.2%, respectively.

“Many foreign equity funds benefited from rising currencies versus the Canadian dollar and produced strong returns for the month,” Chow says. “The euro, for instance, rose over 4% against the loonie this month. Germany, one of Europe’s sleeping giants, looks to have come alive with its new government firmly in place. The DAX rose roughly 3% in March before accounting for the rising euro. Year-to-date returns are even stronger.

Chow says that while the Japanese remains volatile, economic data shows real estate and core prices continue to rise. This has allowed the Bank of Japan to scale back on its elevated liquidity policy, driving the yen higher by 1% against the Canadian dollar.

In the U.S., growth was led by the small and mid cap equity funds, with that index gaining 6%. The broader International and Global fund indices posted returns of 5.4% and 4.9%, respectively, while the U.S. Equity group gained 3.7% in March.

Despite strong gains in the resource sector, Canadian-focused equity funds underperformed. The Canadian Equity fund index gained 3.9% while Canadian Equity (Pure) climbed 3.6%, thanks to holdings in energy and mining stocks, as well as a surprisingly strong 11% gain in the tech sector.

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