Equity mutual funds continued to rally in February, as 40 of 42 fund categories enjoyed gains during the month, according to preliminary data from Morningstar Canada.

Morningstar notes that global markets benefited from a rebound in oil prices, positive U.S. economic data and expansionary monetary policy during the month. “After a six-month slide, oil prices recovered somewhat in late January, which continued during the first week of February, despite the news of record U.S. inventories,” said Achilleas Taxildaris, research analyst with Morningstar.

The retracement in oil prices boosted small-capitalization companies, which typically have a higher exposure to the oil and gas sector. Small-cap funds were among the best performers last month, Morningstar reports, with funds in the U.S. small/mid-cap equities category up 5.8% during the month. Canadian small/mid-cap equity funds were up 5.4%. Canadian-focused small/mid cap equity funds were up 5.0% in February.

Financial stocks also were strong last month, which Morningstar said helped drive returns in the other domestic equity fund indices. Canadian equity funds returned 4.0%; Canadian-focused equity funds gained 3.8%; and Canadian dividend and income equity funds rose 3.7%. Morningstar says funds that focus on the financial services sector were the best overall performers during February, with an average gain of 7.7%.

U.S. equity funds also continued their gains last month. “Strong job reports for a third consecutive month showed a strengthening U.S. economy, but the Federal Reserve Board is not in a rush to start tightening its monetary policy, which helped the stock market reach new all-time highs,” Taxildaris said. “While the Fed had to admit that the employment front looks healthier, muted inflation data provides some support to its dovish stance.”

While the S&P 500 index rose 5.7% in February, the category’s fund index increased by 4.4%, as the Canadian dollar rallied, thereby diminishing returns for Canadian investors.

The stronger loonie also negatively affected Canadian investors’ returns from other sorts of foreign equity funds. Yet strong gains on global stock markets kept these funds in the black nonetheless. The Morningstar global equity fund index was up 3.4% for the month; its indices of the international equities and European equities categories increased by 4.4% and 4.5%, respectively.

“In Europe, Greece dominated news headlines once again,” Taxildaris said, “as the debt-laden country’s newly elected radical left government set out to negotiate new terms of the bailout program with its European Union partners. After three weeks of discussions, they reached a deal for a four-month extension of the existing program. Meanwhile, the euro posted gains and European equity markets continued to perform well, as market participants saw a very small probability of a complete fallout in talks and the eventual exit of Greece from the eurozone.”