February was shaping up to be another spectacular month for equity funds until concerns over the sustainability of China’s growth, coupled with sobering economic news out of the U.S., sent worldwide markets tumbling on the second-last day of the month.

Many of the world’s bourses, including those of China, Canada and the U.S., had already shown signs of recovery by the following day, but others in Europe and Asia continued to tumble.

All 22 of the Morningstar Canada fund indices that measure the performance of the various equity-based categories lost ground on February 27.

Meanwhile, each of the six fixed-income fund indices had above-average one-day gains, a consequence of investors’ fleeing the equity markets for the relative safety of bonds.

The hardest hit fund indices that day were Precious Metals Equity, Emerging Markets Equity and Natural Resources Equity, down 5.9%, 3.9% and 3.5% respectively.

“Gold is normally considered a safe haven during financial and political instability. However, if the Chinese economy falters, the price of the shiny metal may follow suit since China is a significant purchaser of gold,” said Morningstar Canada fund analyst Jordan Benincasa, in a news release.

Before the market correction, the precious metals fund index was boasting a 7.1% gain but finished the month up 2.1%, according to preliminary data released today by Morningstar Canada.

Japanese equity was one of the least affected equity fund categories on Tuesday, as the index lost a relatively modest 1.2%. Before then, the fund index was enjoying a 3.6% return for the first 26 days of the month. However, the sell-off reached the Tokyo stock exchange on Wednesday, and the Nikkei 225 Index dropped almost 3% for the day. This only had a minor impact on Japanese equity funds though, since these benefited from a 1.5% increase in the yen versus the Canadian dollar for the month. The Japanese equity fund Index ended February up 2.2%, ahead of all other Morningstar Canada fund indices.

The Canadian small/mid cap equity and Canadian anchored small/mid cap equity fund indices were down 2.6% and 2.5% respectively on Tuesday, compared to losses of 2.3% for both Canadian equity and Canadian anchored equity. Similar trends could be observed in U.S. equity and global equity fund categories.

But because the small and mid cap fund indices were enjoying better returns than large cap funds leading up to Tuesday’s events, the losses were not enough to offset those gains, and small cap categories finished higher in the rankings for the month as a whole. Canadian small/mid cap equity had the third best monthly return among all fund indices, up 1.9%, and Canadian anchored small/mid cap equity finished ninth with a 1% gain. Canadian equity and Canadian anchored equity both ended the month in the red with losses of 0.3% and 0.7%, respectively.

The worst performing fund index overall for the month was U.S. equity, which lost 2.5%.

The second worst performing fund index in February was emerging markets equity, which lost 2%. Meanwhile, the European equity fund index, whose eight previous monthly returns were all above 1%, finished fourth from the bottom with a 1.7% loss for the month. Both of these categories were hit particularly hard by the correction and, unlike their Canadian and U.S. equity counterparts, had not recovered any of the lost ground by month-end.

For the first time since May 2006, fund indices representing fixed income categories all ended the month in the top half of the performance rankings in February. The Canadian long duration fixed oncome fund index had the best return of this group, a 1.8% gain that placed it in fifth place overall. The five other fixed income fund indices had returns ranging from 1.2% for high yield fixed income to 0.6% for Canadian short duration fixed income.

Final performance figures will be published next week.