Investment funds in Canada had one of their worst one-month performances in a decade in October, as investors around the world sold off equities and flocked to the safety of U.S. Treasury bills.

All but four of the 43 Morningstar Canada fund indices suffered losses in October, including 20 indices that lost more than 10%, according to preliminary performance data released Tuesday by Morningstar Canada.

The month was marked by extreme volatility, and the losses would have been much worse if not for a late rally in the last four days.

Many fund groups suffered their biggest losses since the Russian financial crisis of 1998 or the market crash of 1987. For five of the fund indices, the losses of the past month exceeded even those two events.

“Credit essentially came to a grinding halt in the middle of the month,” said Philip Lee, fund analyst for Morningstar Canada, in a release.

Hardest hit were two sector-specific fund indices, precious metals equity and natural resources equity, with losses of 38.4% and 28.9%, respectively, for the month. Third from the bottom, the Canadian focused small/mid cap equity fund index lost 21.9%. These are the worst monthly returns ever posted by these three indices, Morningstar said.

“Concerns about the global economy dampened the outlook for demand in energy and industrial metals,” Lee said. “This certainly didn’t play out well for the Canadian equity market, which is heavily influenced by energy and materials stocks. In addition, the once-steady financial services sector had another tough time, with Sun Life and Manulife being pummelled by bad news.”

The fund index that tracks the Canadian focused equity category lost 13.6% in October, while the Canadian equity and Canadian small/mid cap equity indices dropped 16.4% and 18.6%, respectively.

Stock markets in the United States didn’t fare much better, with the S&P 500 losing 16.8% for the month. However, for Canadian fund investors, the U.S. dollar’s 12.9% appreciation against the loonie cushioned the blow, and the U.S. equity fund Index lost just 8.1%.

The equity sell-off was not confined to North America. The Asia/Pacific equity, European equity, and International equity fund indices were down 10.8%, 12% and 12.5%, respectively. The worst-performing foreign equity fund index was emerging markets equity, down 19.9%.

“Lending between European banks was virtually non-existent last month,” Lee said. “The health of many of these banks was called into question as several major players – including ING Groep NV, UBS, Royal Bank of Scotland and Fortis – received capital injections.”

Final performance figures will be published next week.

IE