Funds focused on gold and other precious metals soared in December, according to preliminary data released today by Morningstar Canada.

The precious metals fund ondex was the month’s top performer, gaining 13.2%, as only two of the 31 Morningstar Canada fund Indices posted negative one-month returns. Japanese equity and Asia/Pacific Rim equity were the month’s next best performers, gaining 9.5% and 7.8% respectively.

December’s worst performing fund indices were Canadian short term bond and mortgage, and high yield bond, both down 0.1%.

High oil prices propelled funds invested in energy stocks again in December, as the natural resources fund index rose 7.6%, helping it achieve 2005’s best return of 46.1%. Emerging markets equity and precious metals followed with one-year returns of 28.4% and 23.6% respectively.

“Although down from its late-summer peak of US$70 a barrel, the price of oil still rose nearly 50% on the year, and natural gas prices were up more than 60%,” said Morningstar Canada analyst Brian O’Neill, in a release. “At the same time, base metal prices have generally been robust.”

O’Neill said funds focused on Latin American equities led the emerging markets equity category, driven largely by high commodity prices and historically low U.S. interest rates. Precious metals funds were driven by an 18% gain in the price of gold, which topped US$500 an ounce in December.

The year’s worst performing fund index was foreign bond, which fell 6.2% thanks to a rising Canadian dollar. Science and technology was the only other fund index in the red, down 0.1% in 2005, as it, too, suffered from the loonie’s strength. Over the course of 2005, the loonie rose 3% against the U.S. dollar, 18% against the euro, 15% versus the pound and 19% against the yen.

Funds invested in Canadian stock markets outperformed those in most other groups during 2005, as demonstrated by the Canadian equity (pure) fund index’s 23.2% return. On its heels was Canadian small cap equity at 21.1%. The Canadian income trust fund index gained 20%, while Canadian equity was up 17.4% and Canadian dividend rose 16.3%.

After Emerging Markets equity, Japanese equity and Asia/Pacific Rim equity were the year’s strongest foreign equity fund indices, up 20.6% and 19.1% respectively. Asian markets outside Japan lagged, as the Asia ex-Japan equity fund index gained a modest 9%.

The U.S. equity fund index underperformed in 2005, gaining 2.3%. U.S. small and mid cap equity fared better, rising 7.3%.

“It was a rocky year in the U.S., as towering twin deficits, the war in Iraq and massive hurricanes threatened consumer confidence,” O’Neill said. “But the big economic wheel kept on turning, helping U.S. Equity funds eke out a modest return on the year, despite mild currency depreciation.”

The preliminary data from Morningstar Canada excludes some funds’ year-end distributions. Final data will be released next week.