August was another satisfying month for Canadian mutual fund investors. According to Morningstar Canada’s monthly survey of fund performance, 86% of funds across all categories made money during the one-month period ended August 31.

Funds focused on gold and other precious metals were the top performers during August, up an astounding 18.5% in the month, after posting a healthy gain in July as well. Asian equities also had another strong month.

Canadian and U.S. equity funds, while still safely in positive territory, saw their stellar gains of recent months slow somewhat.

Overall, 27 of the 32 Morningstar Canada Fund Indices produced positive one-month gains, consistent with July’s performance and continuing the broad gains that started in April.

“Gold funds have enjoyed significant gains because of a confluence of various factors,” said Gareth Tingling, Morningstar Canada’s manager of fund research. “Investors are wary of bonds because of the massive cash liquidity created by the U.S. Federal Reserve, the perception that rates are not likely to move any lower in the near term, and the looming U.S. government bond supply to finance its ongoing war against terrorism overseas.

“Investors also are pessimistic about the ongoing strength of the U.S. dollar as a store of value, given America’s large trade and budget deficits. As well, stock valuations are very high and stock indices are testing highs not seen since early 2002. What’s more, gold bugs see other favourable factors at work for the metal, including a gap between supply and traditional demand.”

The Precious Metals Fund Index was August’s top performing fund index, with an astounding 18.5% return. The Japanese Equity Fund Index was second best, with a gain of 9.2%, and the Natural Resources Fund Index was third, with a gain of 8.6%.

Of the top 10 fund indices, four were foreign (three of them Asian), three were sector funds (Precious Metals, Natural Resources, and Science and Technology), and three were Canadian content (Canadian Small Cap, Canadian Equity (Pure) and Canadian Income Trusts).

Six of the worst performing fund indices for the month were either fixed income or money market funds, although of the worst three fund indices, two were equities-based. The Morningstar Healthcare Fund Index was the worst performer for the month, with a loss of 3.2%. For the second month in a row, Foreign Bond produced the second-worst performance at -1.5%, and it was followed closely by European Equity Fund Index, which lost 1.2%. The fourth-worst performing fund index for the month was Canadian Mortgage, which lost 0.1%. These were the only fund indices to lose money for the month.

The Canadian Equity Fund Index gained 2.8% in August, a full percentage point below its 3.8% return in July. Canadian Dividend was up 1.6%, compared with 2.2% in July. Canadian Small Cap Equity was August’s top performing North American fund index, up 4.5%. U.S. Equity rose 0.9%, while U.S. Small Cap Equity did better, up 2.7%. The situation overseas wasn’t much better, as Global Equity inched up 1.6%, well off its 6.3% pace in July. In other large categories, Canadian Balanced gained 1.5% while Canadian Money Market was basically flat at 0.2%.

Mackenzie Financial Corp. continued to have the most funds with a five-star Morningstar Rating, with 10 funds, two less than a month earlier. That total excludes clone funds, those that duplicate the performance of another fund but have a tax-advantaged structure or come packaged with some additional features. Including clones, Mackenzie had 24 five-star funds, also good enough for top spot in the five-star stakes but down from last month’s total of 27.

TD Mutual Funds skipped ahead three positions to finish the month with the second highest total of five-star funds with eight, two more than in July. AIM Trimark Investments and Franklin Templeton Investments Corp. were tied for third spot with seven five-star funds, compared with nine and seven respectively in July. Fourth place was also a tie, between CI Mutual Funds Inc. and Investors Group, both of which had six five-star funds.

Including clones, the top five companies were Mackenzie with 24 five-star funds, CI with 17, AIM with 13, TD with 11 and Franklin Templeton with 10. Except for TD and Franklin Templeton, which switched spots, the rankings are the same as last month.

http://www.newswire.ca/releases/September2003/15/c0458.html