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Gold shines in November, but shadows fall on real estate, financials


Precious metals funds shone brighter in November as investors flocked to gold as a safe haven amid market turmoil, while financial and real estate funds got hammered, preliminary Globefund data indicate.

Funds investing in gold and other precious metals jumped an average of 18.1 per cent last month, although the group is still off 49 per cent for the first 11 months of this year.

Gold stocks rose in November as investors pushed bullion prices higher on their safe-haven purchase, and warmed up to the sector on expectations of higher earnings, said Benoît Gervais, a portfolio manager with Mackenzie Financial Corp.

"The earnings are going to go up next year because of declining costs and weak currencies, where [gold] is being produced," the co-manager of the Mackenzie precious metals funds said yesterday.

The price of gold has fallen sharply from a record high of $1,034 (U.S.) per ounce in March. But it rallied to $817 by the end of November from $718.20 at the start of the month.

"It's a highly volatile sector," Mr. Gervais said.

"Trying to time your purchase in a gold fund is very difficult. That's why we say you should have a 10-per-cent allocation to gold within your portfolio and over time ... you should see the benefit of diversification."

Out of 46 Globefund categories, there were only a few in positive territory. Funds in the greater China equity group rose an average of 3.5 per cent, while fixed-income funds climbed an average of 1 to 3 per cent.

Chinese stocks got a boost last month after China announced a massive $586-billion stimulus package aimed at reviving its slowing economy.

The spending plan was motivated by growing concern at an unexpectedly sharp downturn in the country's fast-growing economy that raised the threat of job losses and social unrest.

Mutual funds continued to face red ink in broad-based and sector equity funds.

"There has not been a whole lot of places to hide," said Dan Hallett, a Windsor, Ont.-based independent analyst.

"People are afraid that we are going to be in a deeper economic downturn than what was previously expected. ... Ultimately, that is pushing down [stock] prices."

Last week, an end-of-November rally helped the S&P/TSX composite index lose only 5 per cent for the month, for a 11-month decline of 33 per cent. The S&P 500 shed 7.5 per cent in November, for a 11-month loss of 39 per cent.

Real estate and financial services equity funds were the worst performers last month, shedding, respectively, 13.1 and 11.8 per cent.

Not one real estate fund was in positive territory last month, Mr. Hallett said.

"Certainly, a big factor there has to be the broader economic concerns. If they persist for a long time ... that certainly puts the income that is realized from real estate assets at risk, longer term."

The downtrodden financial sector, at the heart of the current economic crisis, is continuing to keep financial services equity funds in the red.

"We have continued to see pressure on financial service companies both in Canada and globally," said Som Seif, chief executive officer of Toronto-based Claymore Investments Inc.

"The Claymore Equal Weight Banc & Lifeco ETF has 10 companies, and it has been hurt."

For instance, the stock of insurer Manulife Financial Corp. took a pounding last month after it unveiled a sharp drop in third-quarter profit and arranged a $3-billion (Canadian) five-year loan from Canada's six big banks to shore up its capital position.

The best of funds, the worst of funds

Top and bottom 10 fund categories for November

Top 10 fund groups

1-month return3-month returnGroup average Year-to-date
Precious Metals Equity18.1%-32.4%-48.9%
Greater China Equity3.5%-26.9%-46.4%
Canadian Long Term Fixed Income3.1%-2.8%-0.4%
Global Fixed Income3.0%4.7%11.8%
Canadian Fixed Income1.8%-1.8%0.8%
Canadian Short Term Fixed Income0.9%0.7%3.8%
Canadian Money Market0.1%0.2%1.8%
U.S. Money Market0.0%0.3%1.7%
2015 Target Date Portfolio-0.7%-12.3%-14.2%

Bottom 10 fund groups

Real estate equity-13.1%-35.8%-42.0%
Financial Services Equity-11.8%-35.3%-45.9%
U.S. Small or Mid Cap Equity-9.7%-30.5%-34.3%
Canadian Income Trust Equity-8.7%-31.2%-24.9%
Science and Technology Equity-8.1%-28.6%-36.0%
Global Small/Mid Cap Equity-7.1%-33.4%-41.4%
Canadian Small or Mid Cap Equity-7.0%-36.3%-41.9%
Emerging Markets Equity-6.9%-38.9%-49.2%
U.S. Equity-6.9%-23.8%-30.7%
North American Equity-6.3%-23.5%-26.9%
Average for all 46 Globefund categories-3.7%-20.6%-23.9%



© 2007 The Globe and Mail. All rights reserved.

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