Turmoil boosts Canadian-focused funds

By Steven Lamb | March 2, 2011 | Last updated on March 2, 2011
2 min read

The political upheaval that has swept across North Africa and, to a lesser extent, the Middle East, has stifled returns in foreign equity fund categories, while Canadian investments have benefited from surging resource prices, according to Morningstar Canada.

When international tensions mount, there’s usually an upside for gold. February followed the historical pattern—bullion topped $1,400 per ounce—and the Precious Metals Equity Fund Index soared 7.3%.

So far, Libya is the only major oil producer to be affected by pro-democracy movements, but the protracted uprising there has virtually shut down the country’s oil production. This has driven the price of Brent crude above $100 per barrel by the end of February.

This has been good news for mutual funds categories with heavy exposure to energy prices. The Morningstar Natural Resources Equity Index is up 5.1% on the month, while the Canadian Equity Fund Index gained 4.1%. The Canadian Dividend & Income Equity category rose 3.6%.

But political unrest was not the only driver of market gains. Good old market fundamentals helped to drive the Financial Services Equity Fund Index higher by 5.7%, following strong earnings reports from Canadian banks.

South of the border, energy gains were pared back by energy-consuming sectors, and the U.S. Equity Fund Index returned just 1.5%.

The European Equity Fund Index edged higher by just 0.3%, as the stronger petro-loonie wiped out virtually any gains.

Rising resource prices have compounded existing fears of inflation in Asia, and the markets are now pricing in the risk monetary tightening in China. As a result, the Asia Pacific ex-Japan Fund Index, lost 7.1%, while the Greater China Equity Index fell 5.1%. The overall Emerging Markets Index lost 3.2%.

Steven Lamb