Only three of 31 fund indices managed to stay afloat during the second quarter of the year, according to preliminary data on investment-fund performance released today by Morningstar Canada.

The real estate fund index had the highest return for the three months ended June 30 with a 3.5% gain, while the U.S. and Canadian money market fund indices returned 0.7% and 0.6% respectively.

At the bottom of the quarterly rankings, the science and technology fund index was the worst performer with a 12% loss, owing to three consecutive months of negative returns. The index lost 3.1% in April, 8.6% in May and 0.6% in June. The Japanese equity fund index was second from the bottom for the quarter, losing 10.8%.

Funds that focus on specific sectors or non-Canadian equities were hit especially hard during the past three months. Emerging markets equity lost 9.7% and Asia/Pacific Rim equity lost 8.3%, while healthcare and financial services dropped 8.1% and 7.4% respectively.

Canadian equity categories, while still deep in the red, did not generally lose as much as their foreign counterparts. The Canadian dividend fund index lost 3.9%, while Canadian small cap equity, Canadian equity (pure) and canadian equity were down 4.3%, 4.4% and 4.6% respectively. Meanwhile, the Canadian content-heavy precious metals and natural resources fund indices lost 3.1% and 1.2%. Funds in the popular Canadian income trust category collectively lost a relatively benign 1.1% for the quarter.

On the heels of a dismal month of May that saw broad-based losses across all equity and most fixed-income categories, June brought little relief for investors, though the bleeding was less severe. Thirteen indices were in the black for the month; however, most of the gains were less than 1%.

The fund index that tracks the tiny real estate category, which contains just seven funds and total assets barely above $1 billion, was again the best performer for the month of June, gaining 2.8%. The European equity fund index came in second with a 1.1% gain, while three indices — healthcare, international equity and Asia ex-Japan equity — each rose 1% for the month. U.S. equity also did well with a 0.8% gain.

“Both the U.S. dollar and the euro had modest gains versus the loonie in June, which partly explains the success of the foreign-based equity categories,” said Morningstar Canada analyst Brian O’Neill, in a news release. “For example, the S&P 500 index was actually fairly flat for the month, up 0.1% in local currency terms, but it looks better when converted to Canadian dollars. Currency effects also helped the performance of healthcare funds since many of them are heavily invested in U.S. and European names.”

On the negative side, the losses were also muted for the most part, as 12 of the 18 fund indices that lost ground shed less than 1% in June. The Canadian small cap equity fund index was the worst performer with a 4.2% loss, followed by natural resources at -1.9%.

“Energy and metal prices continued to be volatile in June,” O’Neill said. “Though oil was actually up slightly, finishing at about US$74 per barrel, it had fallen sharply below US$70 mid-month. For the most part, base metal prices also dipped somewhat. Canadian small cap funds are typically resource heavy so they were also hit by this volatility,” he added.

“Perhaps most unpredictable was the price of gold, which finished the month down 7% at US$614, after actually plummeting below US$570 mid-month,” O’Neill said. The precious metals fund index ended the month with a 0.6% loss.

Other domestic equity categories were also at the bottom of the fund index ranking in June with losses of about 1%, largely due to moderate weakness in financials and natural resource stocks. “Since these sectors make up about three quarters of the S&P/TSX composite index, Canadian equities followed suit,” O’Neill said.

Final performance figures will be published on at mid-month.