November a golden month for funds

A return of confidence in the markets boosted investment fund returns in November, according to Morningstar Canada. That should come as some relief after a dismal October, when just nine fund groups were on the rise.

The top performing fund category was the Precious Metals Equity Fund Index, which benefited from surging gold prices and a weaker U.S. dollar. The index gained 17.1%, vastly outstripping the second-place fund group, Natural Resources Equity, which gained 5.5%.

“Central banks-including those of India and Mauritius-purchased significant quantities of gold from the International Monetary Fund, underscoring a shift in confidence toward the precious metal as a reserve asset and reliable store of value,” said Brandon. “Platinum, palladium, and silver also made gains during the period.”

As the price of gold and other natural resources rose, so too did domestic equity markets, and funds that focused on Canada generally outperformed their global and international peers.

The Morningstar Canadian Small/Mid Cap Equity Fund Index gained 5%, while the more generalized Canadian Equity group rose 4.7%.

The Canadian Dividend & Income Equity index rose 3.9%, while Canadian Focused Equity picked up 3.9%.

Only one of the 43 fund indices tracked by the research firm posted a negative return for the month, although both the Canadian and U.S. Money Market fund indices posted a big goose-egg — 0.0% returns.

The Japanese Equity fund index was the odd man out, posting a decline of 4.1%, as the Nikkei index dropped 6.9%. That decline was partially mitigated by the fact that the yen rose 3.2% against the Canadian dollar.

“Japanese equities languished under the weight of declining corporate profitability and the prospect of raising additional capital in the equity markets,” said Neal Brandon, fund analyst for Morningstar Canada. “The appreciation of the yen was also viewed as a potential drag on export-led corporate sales and profitability.”

Other Asian markets started the month off strong, but were sideswiped by Dubai World’s debt woes. There were initial fears that the troubles dogging the state-owned corporation were a sign of much more widespread debt problems in emerging markets.

“[It] served as a reminder of the lingering uncertainty and contagion fears in global credit markets,” says Brandon.

The Morningstar Asia Pacific ex-Japan Equity and Asia Pacific Equity fund indices still managed to post slightly positive gains, earning 1.3% and 0.9%, respectively.

(12/03/09)