Fears that the United States may be entering a recession caused a massive sell-off of stocks around the world in January.

As a result, virtually all foreign and domestic equity fund categories suffered significant losses for the month, according to preliminary performance data released today by Morningstar Canada.

The hardest-hit fund category,was science and technology equity. The fund index tracking that category lost 10.7% in January. The Standard & Poor’s information technology index dropped 12.5% when measured in U.S. dollars, but that loss was dampened by the 1.4% depreciation of the Canadian dollar versus its U.S. counterpart.

“Most tech names have been struggling to stay ahead of consumer spending and behaviour during the economic slowdown. Technology heavyweights such as Apple, eBay, Google and Research in Motion fell 30%, 19%, 17% and 17%, respectively, during the month as investors realised that the growth rates priced into their lofty valuations weren’t sustainable,” said Bhavna Hinduja, fund analyst with Morningstar Canada, in a release.

Funds that invest in overseas equity markets were hit harder than those that focus on Canada last month. The emerging markets equity fund index, which produced the best return among all 42 Morningstar Canada Fund Indices for 2007, had the second-worst return in January with a 10.5% loss. It was closely followed by the Asia Pacific ex-Japan equity fund index (second-best in 2007) and its 10.4% loss. Leading these fund indices downward were poor performances in China, where the Shanghai Composite Index and the Hong Kong Hang Seng lost 16% and 15.7%, respectively.

The subprime situation in the U.S., combined with a well-publicized fraud case, had a devastating effect on the financial services sector in Europe, where heavyweights such as Switzerland’s UBS, Germany’s Deutsche Bank and France’s Société Générale experienced multi-billion-dollar write-downs. For Canadian mutual fund investors, this translated into a loss of 8.9% for the European equity fund index. Closer to home, the U.S. equity fund ndex lost 5.5% for the month-a slightly better result than the S&P 500 Index (in U.S. dollars) which lost 6%. Meanwhile, the more geographically diversified International equity and global equity fund indices posted losses of 8.2% and 6.1%, respectively.

Here in Canada, the S&P/TSX composite index lost 4.7% in January, dragged down by the poor performance of its two largest sectors-energy and financial services-which together comprise more than half of the index. This resulted in losses of 5.6% and 5% for the Canadian equity and Canadian focused equity fund indices, respectively.

The losses were more severe among funds that target smaller domestic companies; the Canadian small/mid cap equity fund index was down 7% for the month, while Canadian focused small/mid cap equity lost 7.5%.

Only six of the 42 Morningstar Canada fund indices had positive returns for the month, with the only winning result for an equity category coming from the precious metals equity fund index, which gained 6.1%.

The second-best performing fund index was global fixed Income, which gained 3.1% for the month, in large part due to the loonie’s depreciation against all major currencies including the euro (3%), the UK pound (1.7%) and the Japanese yen (5.8%).

In third place was Canadian short term fixed income, up 1.2%, followed by Canadian fixed income, up 0.5%. The worst-performing fund index among the six bond-oriented categories was high yield fixed income, which lost 1.3%.

Final performance figures will be published next week.