Resources fuel August mutual fund returns

(September 6, 2005) Mutual funds with a high concentration in the resource sector again benefited from high oil prices in August, according to monthly performance data from Morningstar Canada.

Morningstar Canada Natural Resources Fund Index posted a single month return of 6.3%, as crude oil futures topped $70 US a barrel, making August the third month in a row that the resource index led the fund industry. In the first eight months of the year, the resource index has gained 32%.

The Canadian Equity (Pure) index was also among the top performers, thanks to the energy sector, up 2.3%. The index has also posted the second best year-to-date record, with a gain of 16.4%.

“Continued fears of supply disruption catapulted the price of oil, which peaked at more than $70 a barrel,” said Morningstar Canada analyst Mark Chow. “Early in the month, the death of Saudi Arabia’s King Fahd caused worries over the stability of oil supplies, and refinery shutdowns during the month placed more strain on an already tight global refining capacity.

“Finally, Hurricane Katrina slammed into the Gulf of Mexico, which is a major source of oil for the U.S., forcing refineries and platforms to close. Simultaneously, China reported a rise in crude imports while the U.S. reported lower gasoline inventory.”

Overall mutual fund returns were more sedate in August than in July, with just over half of the Morningstar indices rising.

The Canadian Income Trust index posted a 1.8% gain in August, while the Canadian Bond index earned a 1.2% return. Canadian Equity rose 1% and Canadian Balanced edged higher with a gain of 0.6%.

The Japanese Equity index was the second best performer in August, rising 3.2%. The gains in Japanese funds were even strong enough to counterbalance a 1.8% drop in the value of the yen, compared to the Canadian dollar.

“Business confidence among Japan’s large manufacturers rose, breaking a three-quarter losing streak, while the country’s economy grew for the third consecutive quarter,” Chow said. “But Japan’s core index fell by 0.2% for the year to July, and indicators suggest that mild deflation will continue.”

The Asia Ex-Japan index ranked dead last in performance, falling 4.7%. Asia Ex-Japan has out performed the Japanese index throughout most of the year, with the Japanese index posting a year-to-date loss of 0.2%.

For August, the Science and Technology index and the U.S. Equity index rounded out the bottom three performers, down 3.5% and 3.4%, respectively.

American equity investments pulled down the Global Equity index, which lost 2.2%, while the International index, which excludes North American investments, lost 0.6%.

On a year-to-date basis, Japanese Equity is joined by only three other fund indices in negative territory: Precious Metals, which has declined 4.3%; Foreign Bond, off 2.3%; and Science & Technology, losing 1.9%.

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