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3 Energy Mutual Funds to Buy on Geopolitical Goings-on
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With the supply shock of 2022 a couple of years behind us, nobody was expecting energy prices to be solid in 2024. However, the Energy Select Sector SPDR (XLE) has soared 11.3% year to date. The sector was led by oil refiners who have benefited from favorable spreads between the price of oil and its distillates. But it has not been limited to refiners, with explorers and producers, equipment and services gaining ground as well.
Geopolitical tensions have also played a vital role, with the threat of a broader conflict between Israel and Iran looming charge. Escalating hostilities in the Middle East and the conflict between Russia and Ukraine currently show no sign of ending. In June, both the Organization of the Petroleum Exporting Countries (“OPEC”) and OPEC+ agreed to maintain oil output reductions until 2025. These macro drivers will continue to drive up oil demand and prices.
Brent crude prices on Monday were up 0.54% at $83.08/barrel around 0535 GMT and WTI crude was up 0.54% at $80.56.
Since the start of May, crude oil prices have remained relatively low, with tensions easing off, or at least temporarily de-escalating between Iran and Israel. However, with the market consensus now heavily suggesting that the first interest rate cut would happen in September and with continued OPEC production cuts, prices should resume their climb northward. With the inherent cyclical nature of the sector and based on the miles it has already traveled in 2024, the energy sector is possibly looking at a winning year.
Hence, astute investors should now invest in energy mutual funds having oil companies as their major holdings. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected three mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio.
Spirit of America Energy (SOAEX - Free Report) invests the majority of its net assets in a combination of securities and other assets of energy and energy-related companies. As of June 2024, 78.3% of the fund was invested in the energy sector.
Douglas Revello has been the lead manager of SOAEX since January 2020. Three major holdings for the fund are 7.7% in Phillips 66, 7.3% in Marathon Petroleum and 7.3% in ONEOK.
SOAEX’s 3-year and 5-year annualized returns are 19.2% and 7.3%, respectively. Its net expense ratio is 0.91% compared to the category average of 1.56%. SOAEX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
T. Rowe Price New Era Fund (PRNEX - Free Report) invests the majority of its assets in common stocks of companies in the natural resource sector, the earnings and tangible assets of which may benefit from periods of accelerating inflation. As of June 2024, 50.5% of the fund was invested in the energy sector.
Shinwoo Kim has been the lead manager of PRNEX since May 2021. Three top holdings for the fund are 5.3% in Exxon Mobil, 4.5% in ConocoPhillips and 3.2% in TotalEnergies.
PRNEX’s 3-year and 5-year annualized returns are 7.9% and 7.8%, respectively. Its net expense ratio is 0.75% compared to the category average of 1.03%. PRNEX has a Zacks Mutual Fund Rank #1.
Fidelity Select Energy Portfolio (FSENX - Free Report) seeks capital appreciation by investing the majority of its assets in common stocks of companies principally engaged in the energy field, including the conventional areas of oil, gas, electricity and coal, and newer sources of energy. As of June 2024, 89.1% of the fund was invested in the energy sector.
Maurice FitzMaurice has been the lead manager of FSENX since December 2019. Three major holdings for the fund are 24.2% in Exxon Mobil, 5.8% in Canadian Natural Resource and 5.2% in Chevron.
FSENX’s 3-year and 5-year annualized returns are 25.9% and 13.6%, respectively. Its net expense ratio is 0.73% compared to the category average of 1.27%. FSENX has a Zacks Mutual Fund Rank #1.
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3 Energy Mutual Funds to Buy on Geopolitical Goings-on
With the supply shock of 2022 a couple of years behind us, nobody was expecting energy prices to be solid in 2024. However, the Energy Select Sector SPDR (XLE) has soared 11.3% year to date. The sector was led by oil refiners who have benefited from favorable spreads between the price of oil and its distillates. But it has not been limited to refiners, with explorers and producers, equipment and services gaining ground as well.
Geopolitical tensions have also played a vital role, with the threat of a broader conflict between Israel and Iran looming charge. Escalating hostilities in the Middle East and the conflict between Russia and Ukraine currently show no sign of ending. In June, both the Organization of the Petroleum Exporting Countries (“OPEC”) and OPEC+ agreed to maintain oil output reductions until 2025. These macro drivers will continue to drive up oil demand and prices.
Brent crude prices on Monday were up 0.54% at $83.08/barrel around 0535 GMT and WTI crude was up 0.54% at $80.56.
Since the start of May, crude oil prices have remained relatively low, with tensions easing off, or at least temporarily de-escalating between Iran and Israel. However, with the market consensus now heavily suggesting that the first interest rate cut would happen in September and with continued OPEC production cuts, prices should resume their climb northward. With the inherent cyclical nature of the sector and based on the miles it has already traveled in 2024, the energy sector is possibly looking at a winning year.
Hence, astute investors should now invest in energy mutual funds having oil companies as their major holdings. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected three mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio.
Spirit of America Energy (SOAEX - Free Report) invests the majority of its net assets in a combination of securities and other assets of energy and energy-related companies. As of June 2024, 78.3% of the fund was invested in the energy sector.
Douglas Revello has been the lead manager of SOAEX since January 2020. Three major holdings for the fund are 7.7% in Phillips 66, 7.3% in Marathon Petroleum and 7.3% in ONEOK.
SOAEX’s 3-year and 5-year annualized returns are 19.2% and 7.3%, respectively. Its net expense ratio is 0.91% compared to the category average of 1.56%. SOAEX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
T. Rowe Price New Era Fund (PRNEX - Free Report) invests the majority of its assets in common stocks of companies in the natural resource sector, the earnings and tangible assets of which may benefit from periods of accelerating inflation. As of June 2024, 50.5% of the fund was invested in the energy sector.
Shinwoo Kim has been the lead manager of PRNEX since May 2021. Three top holdings for the fund are 5.3% in Exxon Mobil, 4.5% in ConocoPhillips and 3.2% in TotalEnergies.
PRNEX’s 3-year and 5-year annualized returns are 7.9% and 7.8%, respectively. Its net expense ratio is 0.75% compared to the category average of 1.03%. PRNEX has a Zacks Mutual Fund Rank #1.
Fidelity Select Energy Portfolio (FSENX - Free Report) seeks capital appreciation by investing the majority of its assets in common stocks of companies principally engaged in the energy field, including the conventional areas of oil, gas, electricity and coal, and newer sources of energy. As of June 2024, 89.1% of the fund was invested in the energy sector.
Maurice FitzMaurice has been the lead manager of FSENX since December 2019. Three major holdings for the fund are 24.2% in Exxon Mobil, 5.8% in Canadian Natural Resource and 5.2% in Chevron.
FSENX’s 3-year and 5-year annualized returns are 25.9% and 13.6%, respectively. Its net expense ratio is 0.73% compared to the category average of 1.27%. FSENX has a Zacks Mutual Fund Rank #1.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>