Investment funds in Canada continued the strong upward trend that began in March by posting equally impressive results in April.

Just like in March, 20 of the 24 Morningstar Canada fund indices that track equity categories gained 5% or more last month, with four of them posting double-digit returns, according to preliminary performance data released Monday by Morningstar Canada.

The global small/mid cap equity fund index had the best return with a 16.5% gain, while emerging markets equity ranked fourth with a 10.6% gain. Funds in these two categories got a boost following the G20 meeting early in the month, where world leaders outlined their plan for the recovery and committed to, among other things, boosting the International Monetary Fund’s resources by US$750 billion.

“Despite a still gloomy economic outlook, risk-taking returned to the markets as investors pushed up the prices of smaller companies and emerging market equities, and rotated out of defensive areas such as gold and health care,” says Esko Mickels, fund analyst for Morningstar Canada.

The other fund indices that gained more than 10% in April measure the performance of two sector-specific fund categories that were among the most severely battered last year: financial services equity and real estate equity were up 16.1% and 12.9%, respectively, for the month. Financials were once again the main drivers of performance for the North American equity markets. In Canada, the S&P/TSX capped financial index rose 16.7%, while in the United States the financials sub-index of the S&P500 did even better with a 22.2% gain.

“Bank earnings largely surprised analysts and provided a catalyst for the sector,” Mickels says. “Net income at the combined Bank of America and Merrill Lynch was US$4.2 billion, the combined operations of Wells Fargo and Wachovia generated US$3 billion, and Citigroup managed US$1.6 billion.”

Another sector-specific fund category that is profiting from the turnaround is science & technology equity, whose fund index gained 8.8% last month after posting a 9.2% return in March. “Smart phone makers Apple and Research In Motion reported year-over-year increases in profits of 15% and 26%, respectively, as sales pushed higher, particularly at RIM where revenue was up 84%,” Mickels says.

Among sector-diversified domestic equity fund categories, small-cap funds outperformed their larger-cap counterparts. The Canadian small/mid cap equity and Canadian focused small/mid cap equity fund indices gained 8.9% and 8.1%, respectively, while the Canadian focused equity and Canadian equity fund indices were up 7.6% and 7.4%, respectively.

Foreign equity markets had an exceptional month in April, with many major stock indexes like Germany’s DAX, Hong Kong’s Hang Seng and Brazil’s Bovespa each posting returns of more than 14%. But for Canadian fund investors these returns were diminished by currency fluctuations, which saw the Canadian dollar rise by more than 5% against the U.S. dollar, the euro the Hong Kong dollar and the Japanese yen, among others. As a result, the European equity, international equity, U.S. equity and global equity fund indices posted gains of 6.9%, 6.9%, 5.4% and 4.9%, respectively.

Final performance figures will be published next week.

IE