Even as Canadian financial institutions have been relatively sheltered from the credit meltdown in the United States, this country's mutual funds performed more poorly than their American counterparts, according to Morningstar Canada Thursday.

Morningstar, which follows the mutual fund industry, said 41 of the 43 indices which it tracks lost money in September, and Canadian funds on those indices performed more poorly than U.S. stocks.

"Our markets are a lot more focused on the two sectors — natural resources and financials," said Al Kellett, a Morningstar analyst.

Dropping commodity prices and the spectre of slow global economic growth hammered Canadian mutual funds more than American equities, he said.

For example, Morningstar's index of Canadian funds specializing in small and mid-sized capitalization issues lost 18.2 per cent of its value in September. The equivalent American mutual funds index dropped 11.6 per cent of its value in the same period.

September swoon

Equity prices in Canada and the United States took a haircut in September as Lehman Brothers went bankrupt and the two biggest U.S. mortgage companies were taken over along with insurance giant AIG.

Overall, the biggest losers in Morningstar's report for that month were natural resource funds, down a hefty 21.4 per cent in September.

Investing outside of Canada and the United States, however, did not prove to be much of a haven as Wall Street melted down.

Morningstar's index of China-based mutual funds slipped 19.8 per cent in value in the month. Asian funds not including Japanese investment vehicles dropped 13.3 per cent while Japan's funds turned in relatively better performance, losing only 9.8 per cent of their value in September.

Only U.S. money market mutual funds, at 0.0, and Canadian money market funds, posting a gain of 0.1 per cent, managed to avoid losing value in September.