Tax proposal boosts November fund returns

The federal government’s “hands-off” policy toward income trusts helped drive returns in mutual funds focused on this segment of the market in November, according to data from Morningstar Canada.

The Morningstar Canadian Income Trust Fund Index delivered returns of 7.7% for the month, but they weren’t alone, as 29 of the 31 fund indices posted gains. The proposal to cut dividend taxes also boosted performance in the Canadian Dividend index, which gained 4.8%. Domestic small cap equity funds gained 5%.

After trusts, the Precious Metals index was the second best performer, as gold and platinum prices rallied to $500 and $1,000 an ounce, respectively. The volatile index posted a 7.2% return on the month, after it dropped 4.7% in October.

“After gold started the year at $436 US, countless factors have caused its price to rise, including hefty Asian demand and the metal’s role as a hedge against global inflationary pressures and economic shocks,” said Morningstar Canada analyst Brian O’Neill.

The Morningstar Emerging Markets Fund Index continued its strong performance, gaining 6.7% in November to boost year-to-date returns to 22.5%. It was a good month all around for stock funds, as Canadian Equity funds gained 3.9%, while U.S. Equity was up 3.2% and Global Equity rose 2.1%.

Fixed income investments, on the other hand, posted the worst performance in November, as the Foreign Bond Fund index dropped 1.4% and Canadian Short Term Bond & Mortgage retreated off 0.04%. Canadian and U.S. Money Market indices crept higher by 0.1%, while Canadian Bond and High Yield Bond gained 0.7% and 0.3%, respectively.

The Foreign Bond index has posted the worst results in the first 11 months, with a decline of 6.8%. Natural Resource funds remain the leading group for the year, as November’s 4.7% gain has boosted returns to 35.7% since the start of 2005.

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