Equity funds made broad-based gains as 2006 got off to a spectacular start, according to preliminary data released today by Morningstar Canada. Seven Morningstar Canada fund indices boasted one-month returns of more than 6% in January, led by the precious metals fund index, which gained more than 18%.

Overall, 29 of the 31 fund indices posted positive results, with the only losers being two bond fund indices.

“Gold and platinum are now trading at 25-year highs,” said Morningstar analyst Mark Chow, in a release. “Contributing to gold’s strength are geopolitical fears concerning global hotspots like Iran, unrelenting demand from fast-growing economies such as China and India, and rumours that several countries are diversifying their foreign currency holdings to include more gold.”

The natural resources fund index, last year’s top performer, took second place with an 11.6% showing, followed by the emerging markets equity fund index and its 9.5% gain.

“Oil rose to about US$68 per barrel as tensions in the Middle East took center-stage,” Chow explained.

Chow attributes the strength of the emerging markets equity fund index mostly to the Latin American economies, which continue to reap the rewards of a commodity bull market. “The Brazilian and Argentinean market benchmarks both gained more than 15%,” he says.

The strong growth of Asia’s emerging economies also benefited funds in the Asia ex-Japan equity category. That fund index posted a fifth-best gain of 6.6 %, while the Asia/Pacific Rim equity fund index (which includes funds that invest in Japan) placed 10th with 4.2%. The Japanese equity fund index, which capped off a very successful 2005 with a 9.6% gain in December, had a more modest 2.6% return last month.

Both Canadian and U.S. small cap equity funds did well in January. The Canadian small cap equity fund index had a one-month return of 7.3%, while its U.S. counterpart gained 6.2%; the indices ended the month in fourth and sixth place, respectively.

On the larger end of the capitalization spectrum, the Canadian equity (pure) and Canadian equity fund indices stormed out of the gate in January, posting gains of 6% and 4.9% respectively. South of the border, the U.S. equity fund index did not fare as well, returning just under 1%.

All of the fund indices representing global or international equity categories posted healthy gains to start the year. The European equity fund index, after an uninspiring performance in 2005, where it gained just 7.1%, came back with a strong 4.6% return. Meanwhile, international equity jumped 3.6% and global equity was up 2.8%.

While equity funds thrived, bond funds had a lacklustre first month of 2006. The foreign bond and Canadian bond fund indices had the only negative returns in January, both losing less than 1%. The other two bond fund indices also had relatively flat performances — high yield bond eked out a 0.5% gain while Canadian short-term bond & mortgage barely broke even.