Oh Canada! Canuck funds tops in October

(November 2, 2004) Canadian mutual fund investors who put their money into domestic equities were well rewarded in October, as Canadian equity funds outperformed, according to preliminary data from Morningstar Canada.

Record-high oil prices gave a big boost to the Canadian stock markets, while stifling advances in the other jurisdictions, most notably in the U.S. The Canadian economy overall remained strong as well, boosting investor confidence.

“While oil prices wreaked havoc on many other major markets, they have been a boon for the Canadian economy,” said Morningstar Canada analyst Mark Chow. “Canada’s economy is growing faster than expected and numbers have been revised upward.”

“Meanwhile,” Chow continued, “the second interest rate hike in two months brought the Bank of Canada’s benchmark rate to 2.5%, and the Canadian dollar is now trading at highs not seen since the early 1990s.”

The Morningstar Canada Canadian Equity (Pure) Fund Index gained 3.2%, turning in the top performance in a field of 20 advancing indices. The Canada Precious Metals Fund Index and the Canadian Dividend Fund Index were tied as second-best performers, with each gaining 2.8%. The top five list was rounded out by Canadian Equity and Canadian Income Trusts, both at 2%.

Not surprisingly, given the stellar run-up in commodity prices, the Natural Resources Index was the best performer on a year-to-date basis, gaining 13.7% in the first 10 months. Income trusts turned in the second-best 10-month gain, at 13.2%, thanks to the large number of resource-based trusts.

Perhaps less predictable were the third-place gains in Latin American funds, which were up 10.2% year-to-date.

Canadian equities have been world leaders so far this year, at least according to the major indices. As of the close of October’s last session, the S&P/TSX Composite Index has gained 7.91%, while the S&P 500 was up just 1.64%. Both the Dow Jones Industrial Average and the NASDAQ Composite Index were in negative territory. Factor in the continued weakness in the greenback over the past 10 months, and the Canadian gains in real terms are even more impressive. The second best major index was Paris’ CAC 40, which gained 4.18%, just over half the gain realized by the TSX.

Twelve indices declined in October, led by Healthcare, Asia ex-Japan and U.S. Equity, which declined 5.4%, 2.3% and 2% respectively. Healthcare funds were punished by the sharp drop in commonly-held Merck stock, following the withdrawal of its arthritis medication Vioxx.

“Asia reacted to a surprise interest rate hike by China’s central bank, while U.S. equities remained directionless, awaiting an election too close to call,” said Chow.

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