It was another good month to be a bond investor in May, as fixed income mutual funds excelled against equity mandates, according to preliminary performance data from Morningstar Canada.

Among the 44 fund indexes tracked by Morningstar Canada, 28 had positive returns in May. These were led by the small Health Care Equity index (+4.4%) and Long Term Fixed Income Fund Index (+3%).

Poor economic data out of the U.S. soured equity markets and reassured fixed income investors that central banks would not be tightening monetary policy any time soon.

“Although Bank of Canada Governor Mark Carney did hint at an eventual increase in rates to curb inflation, much of the commentary from the central bank has revolved around ensuring the dollar stays in check,” said Morningstar Fund Analyst Salman Ahmed. “This pushed yields down, making fixed-income categories among the best performers for the month.”

The Global Fixed Income, Canadian Fixed Income, and Canadian Inflation-Protected Fixed Income all posted a gain of 1.3%.

Among the equity fund indexes, Health Care was joined on the upside by the Greater China Equity Fund Index (+1.4%) and the Real Estate Equity Fund Index (+1.3%).

Most foreign stock indexes were in the red in May, but a weakening Canadian dollar helped to mitigate losses on the fund indexes.

Domestic equity funds were hurt by sagging commodity prices, with the Morningstar Canadian Equity Fund Index losing 1.1% and the more resource-intensive Canadian Small/Mid Cap Equity Fund Index dropping 1.3%.

The worst-performing fund indexes were Natural Resources Equity and Precious Metals Equity, which lost 3.6% and 5.2%, respectively.

“Oil prices were down for much of the month because of a strengthening of the U.S. dollar and lower expected demand due to poor economic data,” said Ahmed. “The lower price of oil lessened inflation expectations, which also pushed down the price of gold for much of the month. Although these commodities rebounded toward the end of May, it wasn’t enough to offset the losses.”

The best performing domestic equity index was Dividend and Income, with a tiny gain of 0.4%.