Modest May gains for mutual funds

(June 2, 2004) Mutual fund performance was mixed in May with slightly more than half the indexes tracked by Morningstar Canada posting positive results.

It was a volatile month on the stock markets, says Morningstar analyst Mark Chow, dominated by interest rate concerns, high oil prices and renewed geopolitical fears.

That instability was especially pronounced in early May when most funds slumped, only to bounce back during the last week of the month, Chow adds.

According to preliminary data, 18 of the 32 Morningstar Canada fund indexes gained in May, an improvement from April, when nine indexes finished in positive territory.

The precious metals index was May’s best performer, advancing more than 5% as gold bullion prices rose. Takeover speculation also boosted interest in gold stocks, with hostile bids for Wheaton River Minerals and Iamgold, who had previously agreed to a merger.

Science and technology also did well, with a 3.3% gain, helped by tech firm Research in Motion, whose stock rallied 40% in May.

However, gains in the North American equity categories were modest. Canadian equity funds rose 2%, lagging the TSX, while U.S. equity funds rose just 0.3%.

Funds investing in Asian stocks fared poorly in May. The Japanese equity index lost 3.7% while Asia Ex-Japan was off 3.5%. “Japan, which has become increasingly more reliant on trade with China, is still digesting the news of China’s slowdown,” says Chow.

Currency effects had a minimal impact on Canadian investors last month, Morningstar says, with the dollar gaining 0.5% against its U.S. counterpart.

While performance was hit and miss, fund sales continued to be strong in May, according to the preliminary data from the Investment Funds Institute of Canada (IFIC).

“Net sales for the month of May are expected to be approximately $800 million, the highest for a May since 2001,” said Tom Hockin, IFIC’s president and CEO. “Net sales for the first five months of 2004 are expected to be about $13.1 billion.”

IFIC also projects net assets are between $471 billion and $476 billion, up about 0.6% from $470.7 billion in April.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com