Oil was the place to be in July

(August 4, 2004) July was a tough month for mutual fund investors, with 22 of 32 Morningstar Canada Fund Indices posting losses on the month, according to preliminary data from the fund research firm.

The worst performance was turned in by the Science and Technology Fund Index, which dropped 10.5%.

“Profit warnings and sector- and company-specific downgrades by several large U.S. investment houses placed downward pressure on the techs,” said Morningstar analyst Mark Chow.

While techs were hammered, the oldest of the old economy industries excelled. The natural resources index saw the best returns, largely driven by surging oil prices, but the gain was held to just 1.9%.

Crude has continued to push into unseen territory in the first week of August, setting new records on a daily basis. High energy prices have been blamed for poor overall market performance in the U.S., as consumer spending plummets as a result. The effect on markets is even more pronounced in Japan, which is especially sensitive due to its reliance on energy imports.

The Japanese Equity Index was pounded as a result, losing 7.1%, taking the “third worst” title after Canada Health Care Fund Index, which fell 7.3%.

The U.S. Equity Fund Index retreated 4.4%, while the Canadian Equity index dropped just 0.8%. The Canadian Equity (Pure) Fund Index slipped 0.6%.

Second and third best performers were Canadian Income Trusts and the Canadian Dividend Index, which were up 1.5% and 1.4%, respectively. The trust sector benefited from the high price of oil, as funds in this index tend to have a high exposure to oil and gas income trusts. Many dividend funds also hold either trusts or shares of major oil companies, with $42 US per barrel oil fattening their dividends.

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