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Bullion price adds lustre to gold funds

The soaring price of gold bullion added lustre to mutual funds that invest in gold stocks last year, as the precious metals group boasted the top performance among mutual fund categories with a whopping average advance of 38.8 per cent in 2003.

In December, equity funds that invest in natural resources companies were firing on all cylinders as gold continued to climb, and rising prices for energy, nickel and other metals boosted the stocks of many producers.

Funds that invest in natural resources led the pack in December with an average jump of 9.25 per cent. The increase pushed the average gain for funds in the group to 34.5 per cent in 2003.

The rebounding global economy, the revenue needs of the Organization of the Petroleum Exporting Countries and a weak U.S. dollar have all combined to keep the oil price at a lofty level. Prices for natural gas have also strengthened.

Meanwhile, the torrid pace of China's economic growth and the country's rapid industrialization mean prices for metals such as copper and nickel have been on a tear.

Among the top performers in the natural resources group last month, the $49.5-million CI Global Energy Sector fund gained 16.7 per cent, the $48.7-million Dynamic FocusPlus Resource fund advanced 14.7 per cent, and the $12.4-million Sentry Canadian Energy Growth fund moved ahead 14.3 per cent.

The $23.6-million EnerVest Natural Resources Fund Ltd. gained 13.6 per cent, the $231.3-million RBC Energy fund rose 12.6 per cent, and the $820,000 Fidelity Focus Natural Resources Class fund increased 11.7 per cent.

Robert Lyon, portfolio manager for the CI fund, said December was a good month all around for commodity prices.

He notes that his fund has a 45-per-cent weighting in energy.

"That carries a big stick."

The price of gas spikes upward with the first whiff of cold air, he said, while the price of oil also rose.

Mr. Lyon said the moves in the commodities were not as dramatic as the shift in the mindset of market participants, who no longer appear to be bracing for a sudden drop in energy prices. "The expectation of the ability to maintain those prices is starting to creep into the psyches of investors."

Looking ahead, Mr. Lyon expects tight supply to keep energy prices high. "OPEC is really firmly in the driver's seat right now and, frankly, there's not much that anybody can do about it."

Mr. Lyon said the only segment of the natural resources area that has been lagging is the paper and forest products sector.

Gold has strengthened as the U.S. dollar weakens, he said, but gold stocks have not kept pace.

Precious metals funds slipped 2.6 per cent, on average, in December. The $16.6-million Millennium BullionFund jumped 5.7 per cent, the $232.1-million AGF Precious Metal fund added 0.13 per cent, and the $71.8-million CIBC Precious Metals fund edged down 0.73 per cent.

In December, the S&P/TSX composite index added 5 per cent to bring its gain for 2003 to 24 per cent.

Canadian equity funds rose 4.9 per cent, on average, in December and 21 per cent last year.

Last month the $4.2-million Mavrix Growth fund swelled 22.8 per cent, the $304.7-million ABC Fundamental Value fund gained 7.1 per cent and the $171.3-million Saxon Stock fund rose 6.9 per cent.

In the United States, the Dow Jones industrial average of 30 blue-chip stocks surged 6.9 per cent last month to mark its biggest monthly advance since October, 2002, and the best December since 1991. The Standard & Poor's 500-stock index, benchmark of the broader market, added 5.1 per cent for its ninth monthly gain in 10. The technology-heavy Nasdaq composite index increased 2.2 per cent to record its 10th advance in 11 months.

In 2003, the Dow jumped 25 per cent, the S&P 500 advanced 26 per cent and the Nasdaq, 50 per cent.

U.S. Equity funds posted an average advance of 3.3 per cent in December and 8.8 per cent in 2003.

Last month the $15.2-million AGF U.S. Value Class fund increased 7.5 per cent, the $31.8-million Brandes U.S. Equity fund added 7.1 per cent, and the $1-million Dynamic American Value Class fund rose 6.9 per cent.

Funds in science and technology posted a slim 1.7-per-cent gain last month to bring their one-year return to 26.8 per cent.

Canadian small-capitalization stocks soared in 2003. Funds that invest in small-cap names rose 4.5 per cent in December and 33.2 per cent in 2003.

The $161.5-million Dynamic Power Small Cap fund jumped 8 per cent, the $243.6-million CI Canadian Small Cap fund rose 7.2 per cent, and the $172.9-million National Bank Small Capitalization fund increased 6.4 per cent.

Latin American equity funds also saw strong returns in December and the year. Funds in the group rose an average of 9.3 per cent last month and 37.9 per cent in 2003.

Last month, the $20.8-million Fidelity Latin America-A fund soared 9.9 per cent, the $6.4-million CIBC Latin American fund jumped 9.9 per cent, and the $18.2-million TD Latin American Growth fund rose 9.5 per cent.

© 2007 The Globe and Mail. All rights reserved.

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