Sector picks offer top fund returns in August

All that glitters may not be gold, but investing in precious metals provided the brightest returns in the Canadian mutual fund universe in August, according to preliminary data from Morningstar Canada.

August was a pretty good month to be invested, with 27 of 31 Morningstar Canada fund indices gaining ground. But it was the 6.1% gain in the precious metals index that really stole the show, with a come-from-behind surge fuelled by consolidation in the mining sector.

“Precious metals funds surged on the last day of the month, moved by Goldcorp’s friendly $8.6 billion takeover of Glamis Gold,” says Mark Chow, senior fund analyst at Morningstar. “This comes months after Barrick Gold’s acquisition of Placer Dome and Glamis’s takeover of Western Silver, and has fuelled speculation that there will be more deals in this sector in the near future.”

Chow points out that the price of gold actually declined through the month, as global tensions eased slightly. Despite this activity in gold, the overall natural resources fund index slipped 0.7%, making it one of the worst performers on the month.

Precious metals was not the only sector to out-perform the overall market. Morningstar’s science and technology index, long the laggard in the pack, turned in the second-best monthly performance by gaining 4.1%. Still, year-to-date the index is off 5.2%.

“In the U.S., big Nasdaq components such as Intel, Microsoft and Dell pushed the market forward in August with price gains of 9%, 7% and 4% respectively,” Chow said. “But some of the better-performing large technology stocks for the month were not listed on the Nasdaq. Hewlett-Packard continued on its run with a price gain of nearly 15%, while Intel competitor Advanced Micro Devices rose from roughly $19 US at the beginning of August to $25 US. Here in Canada, Research in Motion returned 23%.”

Sticking with the sector-investing theme, the financial-services fund index ranked third, with a gain of 3.4% on the month. It helped that August was marked by the latest quarterly earnings report from the big banks. TD Bank rallied 11% in the month, while Royal gained 9%.

With such strong gains in the mining and financial sectors, the overall S&P/TSX Composite Index was on the rise, boosting performance in broader Canadian equity mandates.

The Canadian Dividend fund index led this pack with a gain of 2.4% on the month. Purity earned a slight reward, as Canadian Equity (Pure) and Canadian Equity gained 2.1% and 2% respectively. Performance was slower among small-cap stocks, and funds in this space eked out a gain of 0.8%.

Among foreign investments, gains across all of the major American indices were all but wiped out by a rising Canadian dollar. The U.S. Equity fund index managed to gain just 0.5%, compared to a 2.1% gain in the S&P 500. The U.S. Small & Mid Cap Equity index climbed just 0.2%, even though the Russell 2000 was up 2.8%, when measured in U.S. dollars.

Returns on the European equity fund index were not encumbered by currency issues, rising 1.4%. International Equity picked up 1%, while Global Equity climbed 0.8%. The Emerging Markets Equity fund index gained 0.7%.

Currency weakness again wiped out stock market gains in Asia, as the Japanese equity fund index lost 0.7%, making it the worst performer on the month.

“The Nikkei 225 rose more than 4% in August, but the yen fell by nearly 5%, cancelling any gains made by the index,” Chow said. “The Japanese market, after performing so well over the past few years, has hit some turbulence so far this year, but the country’s economy continues to show signs of a recovery.”

Currency volatility swept the rest of Asia, resulting in a loss of 0.1% in the Asia Ex-Japan Equity fund and limiting the Asia/Pacific Rim Equity index’s gain to 0.2%.

IFIC reports “strong showing” for August

The mutual fund industry wasn’t hit by the dog days of summer, according to IFIC, which reported net sales of approximately $700 million for the month of August.

“Given that August has traditionally been an unpredictable month during which we’ve seen both net sales and net redemptions in the past few years, this is a strong showing for the mutual fund industry,” says IFIC president Joanne De Laurentiis.

IFIC estimates that August’s net sales will be between $450 million and $950 million; and that industry assets will top the $600 billion mark for the first time ever, up 1.6% from July’s total of $599 billion.

Among firms, RBC was way out in front with $738 million in net sales. CI was a distant second, at $104 million. “It was an excellent month for asset growth, with CI’s mutual and segregated funds up 1.2% as Canadian and global markets continued to make gains from the low for the year reached in mid-June,” said CI president Stephen MacPhail.

Laggards included AIM Trimark, down $272 million, CIBC, off $134 million and AIC, which reported $92 million in net redemptions.

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

(09/05/06)

Steven Lamb