Resourceful fund investors gained in January

(February 2, 2005) The natural resource sector continued to provide mutual fund investors with strong gains in January, returning to the top spot on the Morningstar Canada performance tables after a pullback in December, 2004.

The Morningstar Canada Natural Resources Fund index gained 3.1% in the first month of 2005, thanks in large part to resurgent oil prices and continued strength in the base metals markets.

“Oil’s price was driven by a combination of factors, including a cold snap covering much of North America, worries surrounding the Iraqi elections, and the expectation that the Organization of the Petroleum Exporting Countries (OPEC) would cut production,” said Brian O’Neill, an analyst at Morningstar Canada.

By the end of the month, though, some of these fears proved unfounded, as ramped-up security on Iraq’s election day deterred excessive violence and voter turnout topped 60%. Also, OPEC decided to maintain current production levels, cooling crude prices.

Rounding out the top-performing Morningstar indices, Canadian Income Trusts gained 2.9%, Asia ex-Japan Equity and Emerging Markets Equity both rose 2.7%, while Asia/Pacific Rim Equity picked up 2.2% and European Equity gained 2.1%.

Precious-metals funds did not join the resource rally, though, as a recovering U.S. dollar drove the price of gold lower. The Morningstar Precious Metals Fund index was the biggest loser in January, dropping 4.8%.

The Science & Technology index was the second biggest loser, dropping 2.4%. Overall, only six of 32 Morningstar fund indices declined, but some indices represented the more important fund categories for Canadian investors. The Canadian Equity Fund index dropped 0.2%, while the Canadian Equity (Pure) Fund index fell 0.7%. The U.S. Equity Fund index declined 0.4%.

But bonds helped prop up domestic investments, with the Canadian Bond index gaining 0.8% and the Canadian Balanced index picking up 0.4%.

• • •

Results are based on preliminary performance data from Morningstar. Final performance figures will be published on www.morningstar.ca at mid-month.

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