All that glitters may not be gold, but investing in precious metals produced the highest returns in the Canadian mutual fund world in August, according to preliminary data from Morningstar Canada.
August was quite a good month for investing, as 27 of the 31 Morningstar Canada fund indexes gained in value. However, it was the precious metals index’s 6.1% gain that really stole the show, with the index’s surge driven by consolidation in the mining sector.
“Precious metals funds rallied on the last day of the month on Goldcorp’s friendly $8.6 billion acquisition of Glamis Gold,” says Mark Chow, senior fund analyst at Morningstar. “This came months after Barrick Gold’s acquisition of Placer Dome and Glamis’ acquisition of Western Silver, fueling speculation that there will be more deals in this sector in the near future.”
Chow points out that the price of gold actually fell during the month as global tensions eased slightly. Despite this gold activity, the overall natural resources fund index fell 0.7%, making it one of the worst performers of the month.
Precious metals weren’t the only sector that outperformed the overall market. The Morningstar Science and Technology Index, long a laggard in the pack, posted its second-best monthly performance, gaining 4.1%. Despite this, the indicator has decreased by 5.2% since the beginning of the year.
“In the U.S., large Nasdaq components such as Intel, Microsoft and Dell pushed the market in August with price gains of 9%, 7% and 4%, respectively,” Chow said. “However, some of the big tech stocks that outperformed this month were not listed on Nasdaq. Hewlett-Packard continued its streak with a price increase of almost 15%, while Intel rival Advanced Micro Devices rose from about $19 in early August to $25. Here in Canada, Research in Motion returned 23%.”
Staying on the theme of sector investments, the financial services funds index took third place, with an increase of 3.4% on a monthly basis. The fact that August was marked by the latest quarterly report on the results of large banks helped. TD Bank rose 11% for the month, while Royal gained 9%.
With such strong gains in the mining and financial sectors, the overall S&P/TSX composite index rose, improving performance within a broader mandate for Canadian equities.
The Canadian Dividend Fund Index led the pack, up 2.4% for the month. Purity gained a small reward as shares of Canadian Equity (Pure) and Canadian Equity gained 2.1% and 2%, respectively. Small-cap stocks were slower, with funds in this area up 0.8%.
On the foreign investment front, gains in all major U.S. indexes have been nearly wiped out by the rising Canadian dollar. The US Equity Index gained just 0.5% compared to a 2.1% gain for the S&P 500. The US Small & Mid Cap Equity Index rose just 0.2% even though the Russell 2000 rose 2.8%. % measured in US dollars.
The yields of the European equity funds index were not affected by currency issuance and increased by 1.4%. International Equity increased by 1% and Global Equity by 0.8%. The Emerging Markets Equity fund index gained 0.7%.
Currency weakness again wiped out gains in Asian stock markets as the Japanese equity fund index lost 0.7%, making it the worst performer this month.
“The Nikkei 225 index rose more than 4% in August, but the yen fell almost 5%, erasing any gains made by the index,” Chow said. “The Japanese market, after performing so well over the past few years, has experienced some headwinds so far this year, but the country’s economy continues to show signs of recovery.”
Currency volatility gripped the rest of Asia, causing the Asia Ex-Japan Equity fund to lose 0.1% and limiting the Asia/Pacific Rim Equity index’s gain to 0.2%.
IFIC reports “good results” for August
According to IFIC, which reported net sales in August of about $700 million, the mutual fund industry took a hit this summer.
“Given that August has traditionally been an unpredictable month, where we have seen both net sales and net redemptions over the past few years, this is a good result for the mutual fund industry,” says IFIC President Joanne De Laurentiis.
IFIC estimates August net sales to be between $450 million and $950 million; and that industry assets will cross the $600 billion mark for the first time in history, up 1.6% from the $599 billion total in July.
RBC leads the pack with net sales of $738 million. CI was in second place with $104 million. “It was an excellent month for asset growth, with CI mutual funds and segregated funds up 1.2% as Canadian and global markets continued to post gains from their lows for the year reached in mid-June,” said CI President Stephen MacPhail .
Laggard’s group includes AIM Trimark, down $272 million, CIBC, down $134 million, and AIC, which recorded net write-offs of $92 million.
Submitted by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com
(09/05/06)
