Resource stocks pace healthy fund returns

(December 2, 2004) Canadian mutual funds continued to turn in strong performances in November, according to Morningstar Canada’s monthly review, with high commodity prices giving a boost to portfolios holding resource stocks.

According to preliminary data, all 32 of the Morningstar Canada Fund Indexes posted positive one-month returns, compared with 20 in October. The Canada Natural Resources Fund Index led the pack, with a one month return of 7%.

The price of crude oil and gold both spiked in November, with oil trading above US$50 a barrel and gold topping US$450 an ounce. While crude retreated from its October highs of $55 in the early days of November, it recovered later in the month.

“The price surged back to the mid-century mark as difficulties persisted at Yukos, Russia’s largest oil producer. As well, speculation that OPEC may scale back output hit the rumour mill, reinvigorating prices,” says Morningstar Canada analyst Mark Chow.

“The price of gold climbed above US$450 an ounce during November, a level gold bugs have not seen in 16 years,” he adds. “As the [U.S.] dollar falls, gold becomes more affordable and attractive as a safe keeper of wealth. Its ascent has helped this volatile sector claw back some of the losses it experienced throughout the year.”

The price of gold helped the Precious Metals index return 6% for the month, up to November 29, when the price of the commodity softened temporarily and left the index to post a full month gain of just 3.4%. Still, on a year-to-date basis, it remains the worst performer, down nearly 9%.

After the Resources index, the best returns came from the Latin American Equity index, up 6.4% and the Canadian Small Cap Equity index, with a return of 6%.

The Canadian Equity Fund index a returned of 2.41%, edging out the U.S. Equity Fund index, which gained 2.39% on the month. Both fund indexes managed to beat the markets, with the TSX gaining 1.8% and the S&P 500 rising 1.3%.

“The S&P/TSX Composite Index reached heights during the month not seen since early 2001, closing above 9.000,” Chow notes. “Back then, technology issues — and, for that matter, anything ‘new economy’ — drove the markets, while more recently the Composite has been lifted by commodity-based businesses.”

The worst performers in November were the U.S. and Canadian money market fund indices, which managed minimal returns of 0.02% and 0.04% respectively.

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