Resource slump continues: Morningstar

Falling commodity prices battered returns for investors in resource-focused mutual funds in August, according to the latest monthly report from Morningstar Canada.

Among the 42 Morningstar Canada fund indices, the hardest hit was the Precious Metals Equity index, which fell 11.3%. It’s the second month in a row that this sector has taken the dubious honour: in July, the same index fell 12.5%.

The sagging price of gold — off 8% in August — also contributed to declines in the Natural Resources Equity index, which fell 4.4%. Canadian Focused Small/Mid Cap Equity index fell 4.5%, thanks to the overwhelming presence of mining companies in this segment of the market.

“Such erratic performance is common in what has historically been among the most volatile fund categories,” said Jordan Benincasa, fund analyst for Morningstar Canada.

Of course, gold wasn’t the only drag on the resource sector: the price of oil and natural gas was on the decline through August, weighing on energy stocks.

Outside of resources, the market was much kinder to investors.

Given the weighting of the energy sector among income trusts, it may be surprising that the Canadian Income Trust Equity index was the top performer in August, earning 5%. The gains came from REITs and industrial sector trusts, with investors betting these will provide some shelter from slower economic growth.

The Science and Technology Equity index churned out 4%, while the Health Care Equity index, offered up 3.9%. Even the battered Financial Services Equity index managed a 1.5% gain. The broader Canadian Equity index, with its massive resource weighting, returned just 1.3%.

Most foreign equity fund categories struggled in August, but investments in the U.S. were the exception to that rule. The U.S. Equity, U.S. Small/Mid Cap Equity, and North American Equity categories all managed to post a 4.3% return. Canadian investors got a boost from a rising U.S. dollar as well.

“Funds focusing on U.S. equities performed strongly, despite a slowdown in consumer spending and renewed concerns over inflation,” Benincasa said.

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

(09/03/08)