October maintains bad reputation

(November 2, 2005) The recent downturn in energy prices was enough to knock resource and income trust-based funds out of the top performance slots in October, according to the latest data from Morningstar Canada. In fact, the drop from $66 to $59 a barrel sent energy based funds to the very bottom of the charts.

The Morningstar Natural Resources fund index declined by 8.6%, while the Canadian Income Trust fund index fell 8.1% during the month.

Of course, the falling price of oil wasn’t the only factor weighing on the trust-based mutual funds’ performance. In late September, federal finance minister Ralph Goodale announced his ministry would examine the trust phenomenon and many are worried that could spell the end for the tax-efficiencies trust enjoy. Rising interest rates only added fuel to the income trust sell off.

The damage done by falling oil and gas prices wasn’t limited to those funds with an energy mandate however. Due to their massive weighting on the TSX index, the decline in energy affected many Canadian equity categories.

The Morningstar Canadian Equity (Pure) fund index fell 5.7%, while the Canadian Equity fund index was down 4.7%. Meanwhile, the U.S Equity index dropped only 0.3%, while the Global Equity index was off 1.3%.

“Energy stocks in Canada and elsewhere were reacting to the retreat in both crude oil and natural gas prices during the month,” said Brian O’Neill, fund analyst, Morningstar Canada. “Among a multitude of factors, the OPEC announced it had more than adequate spare capacity to cover winter demand.”

Other core holdings reflected in the Canadian Balanced and the Canadian Dividend indices declined 2.8% and 4.0% respectively. The Canadian Income Balanced index dropped 3.5%.

Overall, it was a pretty tough month for mutual funds, with only four of Morningstar’s 31 fund indices managing to post a gain at all. Japanese Equity proved the best performer, with the index rising 0.8% following the re-election of reform-minded Prime Minister Junichiro Koizumi. This is the fourth consecutive monthly gain for the Japanese index, which is up 7.1% year to date.

The other three gainers were even less impressive, as the U.S. Money Market index gained 0.06%, the Canadian Money Market index was up 0.05% and Real Estate funds were virtually flat with a gain of 0.01%.

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