Soaring commodity prices helped drive Canadian equity funds higher in 2010, marking a second consecutive year of gains, according to data from Morningstar Canada. In fact, all but two of Morningstar’s 44 fund categories ended the year with positive returns.

The top performing fund category was the Precious Metals Equity Fund Index, which gained a whopping 52.1% on the year. One obvious driver was the rising price of gold, but less closely watched precious metals were even better performers.

“Concerns over sovereign debt issues in Europe and the U.S. government’s asset purchases helped fuel another strong year for the price of gold,” said Nick Dedes, fund analyst for Morningstar Canada. “In addition, other precious metals that also serve an industrial role, such as palladium and silver, were big contributors with gains that far outpaced gold’s ascent in 2010.”

The Natural Resources Equity index posted the second best gain, with 27.1%, followed by Canadian Small/Mid Cap Equity, and Canadian Income Trust Equity, up 26.6% and 21.5%, respectively.

The Canadian Equity Fund Index gained 12.9% on the year—not bad, until you consider the 17.6% return for the overall S&P/TSX Composite Index.

In the U.S. equity space, as the fund index picked up only 9%, despite a 15% gain for the S&P 500 index, but in this case the rapid ascent of the Canadian dollar was to blame.

The U.S. Small/Mid Cap Equity Index turned in a 16.5% gain.

Not surprisingly, the worst performing fund index of the year was the European equity group, which lost 2.9%. Investors have been leery of investing in the euro-zone as the sovereign debt crisis that started in Greece rolled across the continent. Some of the major indices posted strong returns—Germany’s DAX gained 16%, while Britain’s FTSE 100 rose 9% on the year—but the euro dropped 11.2% against the loonie, wiping out any gains.

The only other index to post a loss for the year was the Greater China Equity index, which fell 1.5%.

“While China’s relatively robust GDP growth has played an important role in the context of a broader economic recovery, it has also prompted the country’s policymakers to take action to ward off inflationary pressures,” Dedes said. “These actions have weighed considerably on Chinese equity valuations in 2010.”