Global production disruptions and a slump in U.S. crude inventories have eased crude oversupply concerns somewhat. The recent rebound in oil prices from the mid-Feb lows had a positive impact on the energy sector. Moreover, bullish forecasts from Florida-based brokerage investment company Raymond James Financial, Inc. (RJF - Free Report) hinted at the beginning of a strong oil price rally.
Yesterday, both WTI and Brent crude climbed 2% to $50.11 per barrel and $50.91 a barrel respectively, settling at their highest level since June 9. The Energy Select Sector SPDR (XLE) increased 3.5% in the last five days and was the biggest gainer among the S&P 500 sectors. Following the steady recovery in oil prices, mutual funds that have significant exposure to the energy sector could be solid investments.
Global Output Tumbles
Oil prices are taking a breather thanks to a host of macro issues round the globe including production disruption in Canada due to the Alberta wildfires, militant attacks and the threat of a nationwide strike in Nigeria. Also, the political rout in Venezuela and a fall in U.S. shale production benefited oil prices.
Additionally, Saudi Arabia’s newly appointed Oil Minister Khalid Al-Falih said on June 22 that crude “oversupply has disappeared.” Al-Falih added that now a “gradual upward movement in the price of oil” can be witnessed.
The WTI crude price had fallen to a 12-year low mark of $26.21 per barrel in mid-February. Similarly, Brent crude prices went down to $30.06 a barrel on Feb 11. Both WTI and Brent crude prices are now hovering around $50 per barrel, reflecting a whopping jump of more than 90%.
U.S Crude Stockpiles Slumps
The U.S. Energy Information Administration (EIA) reported that U.S. commercial crude oil inventories fell 917,000 barrels to 530.6 million for the week ended June 17. U.S. commercial crude oil inventories posted the fifth consecutive weekly decline.
The EIA also projected on June 21 that U.S. shale production might slump in July, registering the seventh straight monthly decline in domestic crude output. U.S. shale production will most likely fall by 118,000 barrels per day (bpd) to 4.723 million bpd next month.
Crude Price Expected at $80 per Barrel by 2017
Recently, Raymond James Financialprojected that West Texas Intermediate (WTI) will average between $70 per barrel and $80 per barrel by the end of next year. The brokerage firm said that given the developments over "the past few months” they now perceive “that tightening global oil supply/demand dynamics will support a much higher level of oil prices in 2017."
Moreover, if we see the price trend over the last few months, we can say that oil prices are definitely walking on the bullish path, bouncing off their multi-years lows. So, although “Brexit” concerns continued to weigh on the markets, investing in energy mutual funds could be a sensible investment strategy.
Buy These 4 Energy Value Mutual Funds
Against this backdrop, we have selected four energy mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging year-to-date returns. They also have minimum initial investment within $5000 and low expense ratios.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Vanguard Energy Investor (VGENX - Free Report) seeks capital appreciation for the long run. VGENX invests a major portion of its assets in equity securities of companies from the energy sector. The fund has a year-to-date return of 20.6% and an expense ratio of 0.37% as compared to the category average of 1.47%. VGENXhas a Zacks Mutual Fund Rank #1.
Columbia Global Energy & Natural Resources Z (UMESX - Free Report) seeks capital growth for the long run. UMESX invests the lion’s share of its assets in securities of domestic and foreign companies from the natural resources and energy industries. Columbia Global Energy & Natural Resources Z has a year-to-date return of 13.8% and an expense ratio of 1.07% as compared to the category average of 1.40%. UMESXhas a Zacks Mutual Fund Rank #1.
Guinness Atkinson Global Energy (GAGEX - Free Report) invests a large bulk of its assets in securities of both domestic and foreign companies engaged in exploration, production and distribution of energy. GAGEX seeks long-term growth of capital. The fund’s year-to-date return is 15.5%. GAGEX has an expense ratio of 1.41% as compared to the category average of 1.47%. Guinness Atkinson Global Energyhas a Zacks Mutual Fund Rank #2.
Fidelity Select Energy (FSENX - Free Report) invests a huge chunk of its assets in securities of companies that are engaged in the energy industry. FSENX seeks growth of capital and invests mainly in common stocks. Fidelity Select Energy has a year-to-date return of 17.4% and an expense ratio of 0.79% as compared to the category average of 1.47%. FSENXhas a Zacks Mutual Fund Rank #1.
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