Investment funds that have significant exposure to commodities posted sharply negative returns in July, according to preliminary performance data released today by Morningstar Canada.

The precious metals equity fund Index lost 12.5% for the month, which was the worst performance among the 42 Morningstar Canada fund indices.

The resources equity fund index lost 12.4% for the month as the price of oil tumbled. Light crude peaked at US$147 on July 11 on the New York Mercantile Exchange, but had dropped to US$124 by month end amid indications that global growth was slowing. Also, natural gas prices went down by about 30% in July.

Falling energy prices also hurt sector-diversified Canadian equity funds. The Canadian equity, Canadian small/mid cap equity and Canadian focused small/mid cap equity categories lost 6.2%, 7.3% and 8.0%, respectively, for the month.The average funds in each of these three categories allocate nearly half of their assets to natural resources. Meanwhile, funds in the Canadian income trust equity category, which on average allocate 44% to the energy sector alone, collectively lost 5.9% in July.

Foreign equity funds also struggled last month but performed better than their domestic counterparts. The global equity fund index was down 1.4%, while the international equity, European equity and Emerging markets equity fund indices lost 2.6%, 3.1% and 3.2%, respectively. The U.S. equity fund index lost 0.6%, slightly outperforming its benchmark, the S&P 500 index, which lost 0.8% (in U.S.-dollar terms).

Only nine fund indices had positive returns for the month. The best performer was health care equity, which gained 5.9%. “Stock prices in this sector were pushed higher in part by the announcement of several large merger and acquisition transactions,” says Al Kellett, fund analyst for Morningstar Canada.

“Roche bid almost US$44 billion for the outstanding shares of Genentech, while Teva Pharmaceutical Industries signaled its intention to purchase Barr Pharmaceuticals in a deal worth US$7.5 billion. Although the health care sector has struggled during the market downturn of the last 12 months, it is often considered a defensive play that could weather a consumer-led slowdown better than most,” Kellett adds.

Only two other equity fund categories-both of them sector-specific-stayed above water last month; financial services equity had the second-best return with a 3.4% gain, and real estate equity was up 0.1%, ranking seventh. The other winning fund indices all track fixed-income or money market categories.

Final performance figures will be published next week.