Tech funds topped the charts in May

(June 2, 2005) Investors in tech-based mutual funds finally caught a break in May, as the Morningstar Canada Science & Technology Fund Index posted the best returns for the month, rising 6.7%. That gain leaves the index in negative territory for the year, though, with a decline of 0.2%.

Morningstar Canada analyst Mark Chow chalks up much of these gains up to positive earnings at computer giant Dell, which drove the stock higher by 14% on the month.

“Earnings of $0.37 US per share were in line with analysts’ expectations, but Dell also gave strong guidance for the remainder of the year,” Chow says. “In Canada, the S&P/TSX Capped Information Technology Index returned 9%, spearheaded by Research in Motion, which gained nearly 30%.”

He also cited volatility in Nortel’s share price, which offered several opportunities for active managers to realize gains.

In all, 28 of Morningstar Canada’s 32 fund indexes posted gains for May, compared to just 20 in April.

“Unlike last month where markets all over the planet were seeing losses, May was the proverbial rebound,” said Chow. “The fears of rising inflation and an economic slowdown in the United States as well as a slowing Chinese economy were somewhat assuaged. Economic statistics out of Washington also gave investors confidence to bid up stocks in the U.S. marketplace.”

Latin American funds also posted solid gains, maintaining their run near the top of the pack despite a drop in the number of funds in the category. The Morningstar Canada Latin American Equity Fund Index gained 6.5%, boosting its year-to-date return to 9.7% and making it the top performer in the first five months of the year.

The fund category has shrunk to just five funds lately and will now be folded into Morningstar’s Emerging Markets Equity category. Fund manufacturers have, for the most part, already done the same thing, as investors have shown little interest in the geographically focused Latin American funds. The Morningstar Canada Emerging Markets Equity Index posted a return of 3.4% for May.

North American stock market gains helped the “core holding” indexes. Smaller was better south of the border, as the U.S. Small & Mid Cap Equity index gained 5.2%, topping the U.S. Equity Index, which rose 3.1%.

North of the border, the Canadian Equity (Pure) index gained 2.7% and its “impure” sibling climbed 2%. The Canadian Small Cap Equity gained 2.2% and the Canadian Income Trust fund indexes picked up 1.9%.

The Healthcare index posted a return of 2.4%, following its table-topping performance in April which saw it return 5.5%.

Japanese Equity was the worst performing fund index in May, slipping 2.8%, while the Foreign Bond index lost 1.4% and Asia/Pacific Rim Equity dropped 0.7%.

The gains in Latin America and losses in Japan were accentuated by currency fluctuations, as the loonie weakened against the Brazilian real and the Mexican peso, but gained against the yen.

Some of last month’s poorest performers returned to positive territory, as Natural Resources gained 1.9% and Precious Metals climbed 0.4%. Both indexes had a terrible month in April, falling 6% and 7.5% respectively.

On a year-to-date basis, Natural Resources is second only to Latin American funds, with a gain of 7.1%, while Emerging Markets is up 6.6%. The laggards on the year are Precious Metals, down 11.6%. Japanese Equity, off 2.6%, while the High Yield Bond index is down 0.1%.

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