The third quarter of 2007 was a tumultuous mutual fund investors, but 20 of the 42 Morningstar Canada fund indices managed to produce positive returns for the three-month period ended September 30.

The best performer among all fund indices was the Asia Pacific ex-Japan equity fund Index with a 7.3% gain, according to preliminary performance data released today.

With the exception of Japan, Asian markets once again produced strong returns last quarter. In particular, China’s continued its phenomenal run, with the Shanghai Composite Index and Hong Kong’s Hang Seng Index surging by 45.3% and 24.7%, respectively. However, those returns were somewhat dampened for Canadian investors by the roughly 6% appreciation of the Canadian dollar against both the Chinese renminbi and the Hong Kong dollar.

The hot Asian markets also contributed to making emerging markets equity the second best performing fund index for the quarter with a 5% gain. Asian equities (excluding Japan) make up about half the assets of the average fund in that category. Emerging market funds also benefited from double-digit returns in Brazil, as the country’s BOVESPA stock market index gained 11.2%.

Meanwhile, the Asia Pacific equity fund index ranked fourth with a 2.5% quarterly return.

The third-best performer was precious metals Equity, which ended a highly volatile quarter with a 4.5% gain.

“Gold prices are now hitting multi-decade highs,” said Morningstar Canada analyst Philip Lee. “And with a still-shaky U.S. economy, the stage is set for possible additional rate cuts. This has been a boon to bullion producers and their stock prices as the spot price for gold closed above $740 at the end of September – a gain of more than 11% for the quarter. This also helped to boost prices of other precious metals, such as silver and platinum.”

The Canadian equity fund index had a lacklustre start to the quarter, losing 0.2% in July and 1% in August. But a solid performance in September by the Canadian energy and materials sectors, which combined make up 39% of the average fund in the Canadian equity category, helped the fund index to a 2.6% gain, resulting in a fifth-place 1.4% return for the quarter.

For Canadian investors, the trouble in the U.S. markets was compounded by the loonie’s 6.7% surge versus the greenback during the quarter, culminating in the two currencies reaching parity for the first time in more than 30 years. As a result, despite positive returns by the S&P 500 in August and September, and for the quarter as a whole, the U.S. equity fund index lost 5.1% for the three-month period.

Final performance figures will be published next week.