Investment funds that focus on oil and other natural resources plunged in February, in sharp contrast to the sector’s returns in January and during much of last year, according to preliminary data released today by Morningstar Canada.

The natural resources fund index was the month’s worst performer, losing 7.8%. That follows an 11.6% one-month return in January, and a 46.1% one-year return during 2005.

“Oil and many other base metals experienced a pullback this month,” said Morningstar analyst Mark Chow, in a news release. “Oil prices fell roughly US$10 per barrel in February to under US$60 as high crude inventories in the U.S. and lowered demand forecasts from both the International Energy Agency and OPEC drove markets downward.”

“Meanwhile, natural gas prices have nearly halved since December thanks to the relatively warm winter North America has experienced thus far,” Chow said.

“Gold was trading at a 25-year high at the start of the month but suffered a sharp drop during the second week, driving the S&P/TSX Capped Gold Index down 9.2% in February.”

It was a poor month for fund performance overall, as 20 of the 31 Morningstar Canada fund indices posted negative one-month returns. Many fund indices posted basically flat returns.

The financial services fund index was February’s top performer, rising 3%, followed by real estate, up 1.2%, and high yield bond, up 0.8%.

Canadian dividend and European equity were the only other stock-based indices to eke out gains during February, rising 0.4% and 0.2% respectively.

U.S. and other foreign equities generally outperformed their Canadian counterparts, although all were in negative territory. The international equity fund index slipped 0.4%, U.S. equity was down 0.5% and global equity lost 0.6%. Meanwhile, the Canadian equity, Canadian small cap equity and Canadian equity (pure) fund indices fell 1.4%, 1.9% and 2% respectively.

The precious metals fund Index was February’s second-worst performer, dropping 3.9%. Lagging other foreign equity indices was Japanese equity, which suffered a one-month loss of 3.2%.

Fixed-income funds broke even for the most part during February. The Canadian short term bond & mortgage fund index gained 0.1% while foreign bond lagged, falling 0.6%. Canadian stocks dragged down the Canadian balanced and Canadian tactical asset allocation fund indices, which slipped 0.5% and 0.7% respectively.

Final performance figures will be published by Morningstar Canada at mid-month.