TORONTO, Aug. 2, 2012 /CNW/ - After four consecutive months in the red, equity funds in Canada with heavy allocations to natural resources offered healthy gains in July, owing in part to encouraging signs from Europe. Meanwhile, most diversified domestic equity funds were modestly positive while foreign equity funds posted slight losses, according to preliminary performance numbers released today by Morningstar Canada. "The month of July saw investors returning to dollar-denominated assets following strong remarks from European Central Bank President Mario Draghi concerning Europe's commitment to resolve the banking crisis. Draghi's comment that the ECB will 'do whatever it takes' to keep the common currency intact was enough to raise the price of gold and oil by 3% and 7%, respectively, for the month, effectively reversing oil's four-month price decline," said Morningstar Fund Analyst Serkan Altay. This turnaround was most beneficial to funds in the Natural Resources Equity category, with the Morningstar Natural Resources Equity Fund Index increasing by 2.4% in July following a cumulative decrease of 22.7% in the four previous months. Funds in the Canadian Small/Mid Cap Equity and Canadian Focused Small/Mid Cap Equity categories, which have historically allocated large portions of their portfolios to resources, were also among the best performers last month; the Morningstar Canada Fund Indices that track these two categories increased by 1.1% and 1.3%, respectively. Both fund indices posted decreases in each of the four previous months. Only seven of the 22 Morningstar Canada Fund Indices that track equity categories were in positive territory in July. Other winners included the Canadian Dividend & Income Equity, Canadian Equity, and North American Equity fund indices, which increased by 0.8%, 0.5%, and 0.4%, respectively. The best performer overall was the Morningstar Real Estate Equity Fund Index, whose constituent funds invest in large part in real estate investment trusts. The index increased by 3.1%, demonstrating investors' continued appetite for higher income.