Oil drives mutual funds returns

(October 4, 2004) With natural disasters and human conflicts driving the price of oil higher, natural resources offered the best gains for mutual fund investors in September, according to the latest data from Morningstar Canada.

“The price of oil was bid up as U.S. oil production was hampered by Hurricane Ivan and social unrest continued in key producing nations such as Saudi Arabia, Iraq and Nigeria,” said David O’Leary, Morningstar Canada’s senior analyst. “Production in Nigeria and the Gulf of Mexico has dropped considerably. Consequently, oil prices rose despite OPEC’s plan to increase oil production by one million barrels a day.”

The Natural Resources index was also the best performer in the third quarter, gaining 9.7%, and had the best year-to-date return, 12.9%, as of September 30. The second best month-over-month performance was found in the Precious Metals index, which picked up 7.6%.

“The rise in the price of oil prompted worries that rising prices could exert inflationary pressures on the economy,” O’Leary said. “Since gold is often sought as a hedge against inflation, gold was a benefactor of these fears.”

On a quarterly basis, precious metals slipped to the number three spot, with a gain of 7.9%, behind Latin American equity, which gained 8.3%. Latin American Equity maintained the second place position on a year-to-date basis, shared with Canadian Income Trusts, with each rising 11.3%.

The income trusts index owes much of its gains to the rising price of oil, as energy royalty trust are a major market segment.

In all, 19 of 32 Morningstar Canada’s fund indexes moved higher through September, compared to 16 in August.

At the bottom of the table the Japanese Equity index fell 6.2%, while the second worst performer was Asia/Pacific Rim Equity, off 2.7%.

“Oil price concerns and the economic outlook weighed on Japanese stock prices,” O’Leary said. “Tokyo’s Nikkei fell by almost 3% in September led by Japan’s four big banks and leading retailer Aeon.”

Canadians who invested at home were rewarded, as the Canadian Equity (Pure) index gained 3.4% for the month as well as for the quarter and 6.5% on a year-to-date basis.

U.S. Equity funds fell 1.9% in September, posting a third quarter loss of 7.1% and a year-to-date loss of 2.4%.

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