Natural Resources funds had a rough December – losing 2.1% for the month – but it didn’t cast much of a shadow over the sector’s stellar performance during 2004, according to Morningstar Canada.

Surging oil and gas prices lifted the Morningstar Canada natural resources fund index to a 19.4% one-year return. That was third best in 2004 after the tiny Latin American equity index, up 28.1%, and the Canadian income trusts index, up 21.1%.

The results are based on preliminary performance data from Morningstar, and do not include all year-end income distributions.

Morningstar Canada says only two of its 32 fund indices – science and technology and precious metals — lost money for the year, while nine of the indices achieved double-digit returns. Canadian equity funds generally outperformed their foreign counterparts, notably those focused on U.S. equities.

“Investors seeking yield have driven the demand for income trusts,” said Morningstar Canada analyst Mark Chow, in a release. This market has grown from under $20 billion in market cap in 1999 to roughly $90 billion, as trusts have dominated new issues on the TSX this past year.”

Both resource funds and trusts benefited from rising oil prices that went as high as US$55 a barrel during 2004, Chow said. Oil and gas trusts comprise roughly one-third of the S&P/TSX capped income trust index.

The top performing index in December was the Latin American equity fund index, which gained 9.3%, followed by healthcare at 6.5% and emerging markets equity at 5.7%.

The month’s worst performer was precious metals, which lost 6.2%.

Foreign equity funds, especially those invested in Europe, outpaced those focused on Canadian stocks. The global equity fund Index rose 4.7%. By contrast, both Canadian equity and Canadian income trusts gained 2.4%.

U.S. equity funds also outperformed domestic equity funds in December, gaining 4.2%, as the Canadian dollar lost 1.1% to its U.S. counterpart during the month.