Rising commodity demand from China and hopes for a global economic recovery helped boost the performance of precious metals and natural resource funds in May.
Precious metals funds rose an average of 22 per cent, while natural resource funds climbed an average of 14 per cent, according to preliminary figures from Globe Investor.
Commodity prices have surged since China released data indicating higher imports of copper and oil in March compared with a year ago, said Bob Lyon, a resource fund manager at AGF Funds Inc. "That got the ball rolling."
Investors who are seeing signs of other "green shoots" signalling a global economic recovery are also buying into the resource sector and pushing up those stocks, said Mr. Lyon, who runs AGF's precious metals and resource funds.
Energy stocks got a shot in the arm from crude oil prices surging to more than $66 (U.S.) a barrel, up more than $10 during May.
Precious metals funds, which own mostly gold stocks, also got a boost as the price of the yellow metal rallied to close over $980 an ounce last Friday.
Traders are buying the metal as a hedge against the weakness in the U.S. dollar, and over concerns about rising inflation because of increasing U.S. government debt levels, Mr. Lyon said yesterday.
The emerging markets and Canadian equity fund categories also posted robust average returns of 10 per cent last month, but that is not too surprising given that those asset classes would include resource stocks, said independent fund analyst Peter Loach.
"The Canadian market is more influenced by commodity prices than the U.S. market," Mr. Loach said. "It's the same with emerging markets. You take a country like Brazil and lot of their industry - as well as Argentina - is based on resources.
Independent fund analyst Dan Hallett said the fact that the top 10 best-performing fund categories posted average returns between 7.5 and 22 per cent last month indicates there is "across-the board optimism."
The rising stock market prices since their March lows "reflect the fact that most people believe that the financial system - while it still has some healing to do - is not going to disintegrate," Mr. Hallett said.
"That is how much pessimism was built into those earlier low prices," he said. "They [investors] were not comfortable at all with any stock market risk. Clearly now, they are becoming more comfortable."
The stock market "always surprises in both directions," he said. "It surprised me in the way that things fell so sharply and so far - both in the magnitude and velocity.
"Equally striking is just how quickly and how far it has turned. We are still well in the hole from the highs, but even starting from a relatively low point, it is surprising ...Whether this is the final turn, who knows?"
Top and bottom 10 fund categories in May
|Group Avg 1 mo Rtn||Group Avg 3 mo Rtn||Group Avg 1 yr Rtn|
|Precious Metals Equity||21.8%||24.9%||-13.1%|
|Natural Resources Equity||13.6%||31.7%||-40.4%|
|Emerging Markets Equity||10.1%||37.0%||-32.0%|
|Financial Services Equity||9.6%||46.5%||-34.7%|
|Canadian Income Trust Equity||9.0%||20.2%||-26.0%|
|Greater China Equity||8.7%||30.6%||-18.3%|
|Canadian Small or Mid Cap Equity||8.7%||25.0%||-30.5%|
|Asia Pacific Equity||8.3%||21.2%||-27.4%|
|Canadian Focused Small/Mid Cap||7.5%||23.8%||-29.9%|
|Global Fixed Income||-2.0%||-2.8%||7.6%|
|U.S. Small or Mid Cap Equity||-1.9%||15.5%||-31.3%|
|Science and Technology Equity||-1.5%||16.9%||-24.4%|
|Retail Venture Capital||-1.0%||-0.5%||-16.1%|
|Canadian Long Term Fixed Income||-0.3%||0.7%||0.9%|
|Canadian Short Term Fixed Income||-0.1%||1.0%||4.1%|
|U.S. Money Market||0.0%||0.1%||1.1%|
|Canadian Money Market||0.1%||0.2%||1.2%|
|Canadian Fixed Income||0.3%||2.2%||3.0%|
|Average for all funds regardless of asset class||3.7%||14.3%||-19.9%|
|S&P 500 Composite||5.3%||25.0%||-34.4%|
|S&P/TSX Composite Index||11.2%||27.7%||-29.5%|
|Source: Globe Investor|
© 2007 The Globe and Mail. All rights reserved.
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