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Precious metals group tarnished


Equity funds that invest in precious metals suffered the biggest downdraft in March as events in Iraq continued to drive trading patterns in gold.

Precious metals funds dropped an average of 8 per cent in March, trimming their average gain for the year ended March 31 to 10.1 per cent.

Among the top performers, the $300,000 Cambridge Precious Metals (Sagit) Fund slipped 1.4 per cent, the $13.5-million Mackenzie Universal World Precious Metal Capital Class Fund dropped 6 per cent and the $1.9-million FCMI Precious Metals Fund Inc. fell 7.5 per cent.

Others included the $160.4-million iUnits S&P/TSE Canadian Gold Index Fund, which decreased 7.8 per cent, the $6.8-million StrategicNova World Precious Metals, which dropped 7.9 per cent, and the $40.3-million CIBC Precious Metals Fund, which fell 7.9 per cent.

Margot Naudie, manager of the $90.1-million TD Precious Metals Fund, which slipped 7.9 per cent, said some investors in gold took money off the table after the metal's strong move earlier in the year. Prospects of a war in Iraq had driven gold to a six-year high of $388.50 (U.S.) in February.

"Clearly, the gold price had had a very, very strong run. It ran into profit-taking, which is not surprising."

Ms. Naudie said stock selection was key for the top-performing funds. Her fund had light exposure to Meridian Gold Inc., for example, which tumbled during March. She added that she sees the pullbacks in many stocks as opportunities to buy. She expects pressure on the U.S. dollar and the unwinding of hedge positions by gold producers to push gold shares higher.

Gold watchers said one of the biggest factors underlying the gold market in March was the threat of reflation -- a scenario that leads the central banks of the world to print rafts of new money to avoid deflation.

Devaluation fears are a positive factor for gold because the value of an ounce of gold expressed in U.S. dollars is going to rise if the greenback is being devalued as the U.S. Treasury prints more. By the time March wrapped up, bullion had tumbled to $335.90 an ounce.

Canadian equity funds dipped 3 per cent, on average, last month. The group's average loss for one year now stands at 19.6 per cent.

The Toronto Stock Exchange S&P/TSX composite index slipped 3.2 per cent during the month. Markets were whipsawed by investors alternately consumed by war worries and shaking them off.

The $8-million (Canadian) Investors Summa Class edged down 0.1 per cent, the $3-billion AIC Diversified Canada slipped 0.4 per cent and the $8.5-million Acuity All Cap 30 Canadian Equity dipped 0.8 per cent.

Canadian large-cap equity funds also retreated in March, with an average loss of 3.2 per cent. The average shortfall for one year widened to 20.4 per cent.

Funds that invest in Canadian small-capitalization stocks fell 4.2 per cent, on average, in March. The category has an average one-year loss of 16.3 per cent.

Last month, the $500,000 Cambridge Special Equity (Sagit) rose 1.3 per cent, the $8.8-million Dynamic Focus Plus Small Business jumped 0.4 per cent, and the $400,000 University Avenue Canadian Small Cap slipped 0.04 per cent.

Funds that invest in natural resources fell along with oil prices in March. The average decline in the category was 5.7 per cent for one month and 7.1 per cent for one year.

The $9.7-million Sentry Canadian Energy Growth decreased 3 per cent, the $46.4-million CI Global Energy Sector fell 3.2 per cent and the $700,000 Fidelity Focus Natural Resources Class lost 3.3 per cent.

Latin American equity funds were among the few groups to gain ground in March, rising an average 4.6 per cent. For one year, the category was down an average 34.1 per cent.

In Brazil, Luiz Inacio Lula da Silva, who was inaugurated as president in January, has proven many of his critics wrong. The Brazil Bovespa stock index advanced 10 per cent in March.

Last month the $3.7-million StrategicNova Latin America Fund rose 6.4 per cent, the $4.1-million CIBC Latin American advanced 5.6 per cent and the $4.1-million BMO Latin American increased 5.5 per cent.

© 2007 The Globe and Mail. All rights reserved.

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