Metals, fixed-income top the charts in August

Investors are embracing gold, silver and government bonds once again, as economic uncertainty cast a shadow over the broad stock markets in August, according to performance data released by Morningstar Canada.

Eleven of the 24 Morningstar Canada Fund Indices that track equity fund categories had positive returns in August, with the Morningstar Precious Metals Equity Fund index leading the pack with a 14.4% gain.

Equity funds in Canada posted mixed results in August due to a sluggish economy. Investors though were lured back to the perceived safety of gold and silver. This drove prices higher and Barrick and Goldcorp enjoyed modest gains in the high teens.

“Investors appeared to turn their attention back to broader macro issues toward the end of the month once individual companies had announced their earnings,” said Nick Dedes, fund analyst for Morningstar Canada. “Second-quarter economic growth cooled to levels well below the Bank of Canada’s 3% annualized forecast and U.S. data has offered little encouragement, with weak housing figures and private-sector job cuts.”

These economic factors also led to an exceptional month for funds that focus on fixed-income securities and despite low yields, investors bought up government bonds last month, driving yields even lower and pushing bond prices up.

In turn, the Canadian Inflation-Protected Fixed Income and the Canadian Long Term Fixed Income fund indexes gained 3.1% in August. It was their best one-month performance in more than a year. The fund indices tracking the Canadian Fixed Income and Global Fixed Income categories also did well, each gaining 1.7%.

“Canadian banks released mixed third-quarter results, as generally lower trading revenues faced off against lower loan loss provisions,” Dedes said. “The domestic insurers were a major drag on the sector. In particular, Manulife Financial faced a staggering 27% decline in its stock price, in a month where it reported a second-quarter loss of $2.4 billion and saw its credit rating downgraded.”

(09/02/10)