Mutual funds in practically all asset classes had positive results in 2006, with the most impressive gains coming from equity-based fund categories.

According to preliminary data released today by Morningstar Canada, all but one of the 42 Morningstar Canada fund indices gained ground last year, led by a stunning 49.9% return by the precious metals equity fund index.

“Precious metals funds had an outstanding year,” said Morningstar Canada senior fund analyst Brian O’Neill, in a news release. “Though it was very volatile, the price of gold rose sharply from US$513 per ounce at the beginning of the year to US$632 by year’s end, which is a 23% gain. Meanwhile, silver prices did even better, up 46% for the year.”

Funds that focus on foreign equities had an exceptionally good year in 2006, thanks to continued growth in emerging markets and renewed growth in Europe. The Asia Pacific Rim ex-Japan equity fund index had the year’s second best return with 34.8%, followed closely by European equity with 33.7% and emerging markets equity with 31.5%.

The more broadly diversified international equity and global equity fund indices also performed well with gains of 23.9% and 18.1% respectively. The Japanese equity fund index was the lone exception to this trend, posting a disappointing return of 0.4% despite high expectations for this market at the start of the year.

Besides market growth, currency movements were also a major factor contributing to the success of European funds. “The Canadian dollar was relatively flat over the course of the year in relation to the U.S. dollar and the yen, but it was down 10% and 12% for the year against the euro and the pound, respectively,” O’Neill said. “In times when the loonie is relatively weak, foreign funds get a boost when their returns are translated back into Canadian dollars.”

While funds invested in Canadian stock markets generally underperformed their foreign equivalents in 2006, the major categories still offered decent returns. The Canadian equity fund index was up 15.3% for the year, ranking 11th among all fund indices. Meanwhile, Canadian anchored equity gained 15.2%, Canadian small/mid cap equity gained 13.7% and Canadian anchored small/mid cap equity gained 13.2%.

The year’s worst performing fund index was Canadian inflation-protected fixed income, which fell 3.5%. The category’s constituent funds are largely comprised of real-return bonds, which include a component that adjusts for inflation. “With lower perceived inflation, the prices of these securities have been pushed downwards,” O’Neill said.

Fixed-income fund categories were no match for the torrid pace set by equity funds and finished the year at the bottom of the rankings. The high yield fixed income fund index had the best performance within this group, up 8.2%, while most of the other indices had gains of roughly 3%. This trend was also reflected in the performance of the portfolio fund indices, where equity-tilted categories outperformed their fixed-income counterparts in 2006.

Morningstar’s preliminary data excludes some funds’ year-end distributions. Final data will be released next week.