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4 Energy Mutual Funds to Avoid on Recent Crude Decline
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Recent global production rise and overall increase in U.S. crude inventories have aggravated crude oversupply and hurt oil prices. Recently, oil prices fell to their lowest levels since mid-April, which in turn took a toll on the energy sector. Moreover, top global integrated oil firms like Exxon Mobil, Royal Dutch Shell and ConocoPhillips posted disappointing quarterly results, which also weighed on crude prices.
Following a decline in oil prices, unfavorably ranked mutual funds that have significant exposure to the energy sector could be the worst investment options.
Oil Remains in Bear Market, Output Soars
Oil prices continued to remain in bear market following news of rising global crude production. Earlier, supply outages in Canada, Nigeria and Libya had resulted in an increase in oil prices. However, the Alberta wildfire in Canada is reportedly "under control" and Nigeria has resumed payments to militants. Also, Libya indicated that the nation will most likely re-open its oil terminals.
Oil prices fell around the last one month (5 July 2016 to 3 August 2016), both WTI and Brent crude slid by 12.4% and 10.1% to $40.83 per barrel and $43.10 a barrel respectively, during the period.
Both WTI and Brent crude also slumped from the record gains registered in early June. The global and domestic crude benchmarks fell by 20.3% and 17.9% from June’s record high level of $51.23 and $52.51 per barrel, respectively. A drop of more than 17% from the recent peak, more or less signifies a bear market.
U.S Crude Inventories Climbs
The U.S. Energy Information Administration (EIA) reported that U.S. commercial crude oil inventories rose 1.4 million barrels to 521.1 million for the week ended July 29. This was in contrast to a decrease of 900,000 barrels reported by the American Petroleum Institute (API) a day earlier.
Further, Baker-Hughes Inc. reported that the U.S. oil and gas rig count increased by one to 462 and that the domestic oil rig count also increased by three to 374, last week. The five-straight weekly increase in rig count, continued to have a negative impact on oil prices.
XOM, RDS.A and COP Post Disappointing Results
Some of the major oil companies reported weaker-than-expected second-quarter earnings. Exxon Mobil Corp. (XOM - Free Report) reported earnings per share of 41 cents, below the Zacks Consensus Estimate of 64 cents. Revenues of $57,694 million also fell short of the Zacks Consensus Estimate of $59,834 million.
Royal Dutch Shell plc posted adjusted earnings and revenues of 6 cents per share and $58,415 million, missing the Zacks Consensus Estimate of 53 cents and $65,464 million, respectively.
ConocoPhillips (COP - Free Report) reported second-quarter adjusted loss of 79 cents per share, wider than the Zacks Consensus Estimate of a loss of 62 cents. Revenues of $5.58 billion missed the Zacks Consensus Estimate of $6.47 billion.
4 Energy Mutual Funds to Avoid
As discussed above, most of the recent data related to the overall energy sector is discouraging. Energy Select Sector SPDR (XLE) slopped 2.3% in the last one-month period and was the biggest loser among the S&P 500 sectors. Additionally, mutual funds related to this sector registered weak returns. According to Morningstar, the equity energy mutual fund posted a one-month negative return of 2.9%.
Against this backdrop, we have selected four energy mutual funds that have a Zacks Mutual Fund Rank #4 (Sell) or 5 (Strong Sell). They have minimum initial investment within $5000 and high expense ratios. Also, these funds have poor three year annualized returns, so dropping these funds from portfolio might be appropriate.
We expect these funds to underperform 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.
ICON Energy S generally invests a bulk portion of its assets in securities of companies from the energy sector. ICENX is non-diversifiable in nature. The fund seeks growth of capital for the long run. The fund has 3-year negative return of 11.8%, and an expense ratio of 1.42%, higher than the category average of 1.40%. ICENX sports a Zacks Mutual Fund Rank #4.
Ivy Energy A (IEYAX - Free Report) seeks appreciation of capital. The fund invests a lion’s share of its assets in securities of companies from the energy sector. It may also invest in companies, which are engaged in developing products and services to improve energy effectiveness. The fund has 3-year negative return of 7.2%, and an expense ratio of 1.49%, higher than the category average of 1.40%. IEYAX sports a Zacks Mutual Fund Rank #5.
Oppenheimer SteelPath MLP Alpha Y (MLPOX - Free Report) primarily invests a major portion of its assets in securities of master limited partnerships (MLPs). These MLPs generate their revenue from processing, refining, distributing and mining natural gas, crude oil, etc. The fund seeks returns. The fund has 3-year negative return of 2.9%, and a high expense ratio of 1.27%. MLPOX sports a Zacks Mutual Fund Rank #4.
Oppenheimer SteelPath MLP Income A (MLPDX - Free Report) seeks for return. The fund invests a majority of its assets in MLPs. Although its main investment target is more liquid and larger MLPs, it also invests in MLPs from different market-cap range. This non-diversified fund has 3-year negative return of 4.6%, and a high expense ratio of 1.38%. MLPDX sports a Zacks Mutual Fund Rank #4.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the help of Zacks Rank.
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4 Energy Mutual Funds to Avoid on Recent Crude Decline
Recent global production rise and overall increase in U.S. crude inventories have aggravated crude oversupply and hurt oil prices. Recently, oil prices fell to their lowest levels since mid-April, which in turn took a toll on the energy sector. Moreover, top global integrated oil firms like Exxon Mobil, Royal Dutch Shell and ConocoPhillips posted disappointing quarterly results, which also weighed on crude prices.
Following a decline in oil prices, unfavorably ranked mutual funds that have significant exposure to the energy sector could be the worst investment options.
Oil Remains in Bear Market, Output Soars
Oil prices continued to remain in bear market following news of rising global crude production. Earlier, supply outages in Canada, Nigeria and Libya had resulted in an increase in oil prices. However, the Alberta wildfire in Canada is reportedly "under control" and Nigeria has resumed payments to militants. Also, Libya indicated that the nation will most likely re-open its oil terminals.
Oil prices fell around the last one month (5 July 2016 to 3 August 2016), both WTI and Brent crude slid by 12.4% and 10.1% to $40.83 per barrel and $43.10 a barrel respectively, during the period.
Both WTI and Brent crude also slumped from the record gains registered in early June. The global and domestic crude benchmarks fell by 20.3% and 17.9% from June’s record high level of $51.23 and $52.51 per barrel, respectively. A drop of more than 17% from the recent peak, more or less signifies a bear market.
U.S Crude Inventories Climbs
The U.S. Energy Information Administration (EIA) reported that U.S. commercial crude oil inventories rose 1.4 million barrels to 521.1 million for the week ended July 29. This was in contrast to a decrease of 900,000 barrels reported by the American Petroleum Institute (API) a day earlier.
Further, Baker-Hughes Inc. reported that the U.S. oil and gas rig count increased by one to 462 and that the domestic oil rig count also increased by three to 374, last week. The five-straight weekly increase in rig count, continued to have a negative impact on oil prices.
XOM, RDS.A and COP Post Disappointing Results
Some of the major oil companies reported weaker-than-expected second-quarter earnings. Exxon Mobil Corp. (XOM - Free Report) reported earnings per share of 41 cents, below the Zacks Consensus Estimate of 64 cents. Revenues of $57,694 million also fell short of the Zacks Consensus Estimate of $59,834 million.
Royal Dutch Shell plc posted adjusted earnings and revenues of 6 cents per share and $58,415 million, missing the Zacks Consensus Estimate of 53 cents and $65,464 million, respectively.
ConocoPhillips (COP - Free Report) reported second-quarter adjusted loss of 79 cents per share, wider than the Zacks Consensus Estimate of a loss of 62 cents. Revenues of $5.58 billion missed the Zacks Consensus Estimate of $6.47 billion.
4 Energy Mutual Funds to Avoid
As discussed above, most of the recent data related to the overall energy sector is discouraging. Energy Select Sector SPDR (XLE) slopped 2.3% in the last one-month period and was the biggest loser among the S&P 500 sectors. Additionally, mutual funds related to this sector registered weak returns. According to Morningstar, the equity energy mutual fund posted a one-month negative return of 2.9%.
Against this backdrop, we have selected four energy mutual funds that have a Zacks Mutual Fund Rank #4 (Sell) or 5 (Strong Sell). They have minimum initial investment within $5000 and high expense ratios. Also, these funds have poor three year annualized returns, so dropping these funds from portfolio might be appropriate.
We expect these funds to underperform 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.
ICON Energy S generally invests a bulk portion of its assets in securities of companies from the energy sector. ICENX is non-diversifiable in nature. The fund seeks growth of capital for the long run. The fund has 3-year negative return of 11.8%, and an expense ratio of 1.42%, higher than the category average of 1.40%. ICENX sports a Zacks Mutual Fund Rank #4.
Ivy Energy A (IEYAX - Free Report) seeks appreciation of capital. The fund invests a lion’s share of its assets in securities of companies from the energy sector. It may also invest in companies, which are engaged in developing products and services to improve energy effectiveness. The fund has 3-year negative return of 7.2%, and an expense ratio of 1.49%, higher than the category average of 1.40%. IEYAX sports a Zacks Mutual Fund Rank #5.
Oppenheimer SteelPath MLP Alpha Y (MLPOX - Free Report) primarily invests a major portion of its assets in securities of master limited partnerships (MLPs). These MLPs generate their revenue from processing, refining, distributing and mining natural gas, crude oil, etc. The fund seeks returns. The fund has 3-year negative return of 2.9%, and a high expense ratio of 1.27%. MLPOX sports a Zacks Mutual Fund Rank #4.
Oppenheimer SteelPath MLP Income A (MLPDX - Free Report) seeks for return. The fund invests a majority of its assets in MLPs. Although its main investment target is more liquid and larger MLPs, it also invests in MLPs from different market-cap range. This non-diversified fund has 3-year negative return of 4.6%, and a high expense ratio of 1.38%. MLPDX sports a Zacks Mutual Fund Rank #4.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the help of Zacks Rank.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>