Natural resources equity and precious metals equity were the best-performing investment fund categories in May, according to preliminary performance data released today by Morningstar Canada.

Fuelled by rising energy prices, the natural resources equity index gained 8.5% last month. “Energy was the story for the month of May,” says Philip Lee, fund analyst for Morningstar Canada. “Potential supply disruptions arising from armed conflicts, and fears of political instability in some of the major oil-producing nations, were among the main drivers for the monthly advance.”

Crude oil, which peaked at a record US$135 during the month, finished the month at $127.35, up 12.2% from the end of April. During the same period, natural gas prices rose by 7.9%.

Finishing a strong second among fund indices was the precious metals equity index, up 6% in May, as the price of gold rose 2.9%. “Higher energy prices helped bolster the demand for gold because it’s often a vehicle of choice for investors to protect their assets against an increase in inflation,” Lee says. “The rise in the price of bullion gave a boost to gold stocks.”

Of the five top-performing fund indices, the remaining three were all domestic equities. The Canadian equity index, whose S&P/TSX composite index benchmark has roughly half of its market capitalization devoted to resources issues, gained 5.7%.

Rounding out the top five indices were the Canadian focused small/mid cap equity and Canadian small/mid cap equity indices, which rose by 4.7% and 4.3% respectively. Just behind was the Canadian income trust equity index, up 4%.

Overall, gains outweighed losses by a wide margin for fund investors, as 33 of 42 fund indices produced positive returns. The rising Canadian dollar eroded the returns of foreign equities. In the largest such category, the global equity Index was essentially flat, with a 0.1% return. The top-performing foreign equity index was the US small/mid cap equity index, up 3.5%.

The worst-performing fund indices were the two devoted to Asian equity markets. The Asia Pacific ex-Japan index lost 2.4%, while the Asia Pacific equity index was down 1.9%.

The third worst performer was the global fixed income index, down 1.7%. This was due primarily to currency-related losses as the Canadian dollar gained ground against all of the major foreign currencies.

“The demand for Canadian commodity stocks pushed the loonie higher,” Lee says. “Market expectations that the Bank of Canada won’t need to reduce interest rates also got Canadian dollar investors back into the currency.”

Most other fixed income indices had either slight gains or losses, except for the Canadian inflation-protected fixed income index, which was up 2.7%.

Final performance figures will be published next week.