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5 Best Performing No-Load Energy Mutual Funds of Q1

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With a staggering 24% return, the energy sector was the best performer among the S&P 500 sectors last year. But, oil prices fell in the first quarter of 2017, which in turn weighed on the energy sector, making it the only loser among the S&P 500 sectors.

Moreover, no energy mutual funds gained in the first quarter. However, broader trend and analysis show that certain energy funds are buy ranked and they will perform better in the future based on positive first quarter earnings results. In this context, investing in such mutual funds from the sector continues to be a prudent investment choice.

Oil Price Performance in Q1

Crude prices logged a loss of almost 6% for the first quarter as traders focused on the rising flood of U.S. shale-driven production. In other words, while OPEC's moves to trim output and rebalance the demand-supply situation have stabilized the market to a large extent, in the process it has incentivized shale drillers to churn out more.

With the recent uptick in U.S. shale production putting more pressure onto the market, oil ended the first quarter at $50.60 per barrel, 5.8% lower than year-end 2016 prices.Natural gas fared worse, dropping more than 14% in the Jan-Mar period, thanks to one of the mildest winters on record. (Read More: 5 Energy Stocks to Ride the Sector's Earnings Improvement)

Moreover, the Energy Select Sector SPDR (XLE) fell 7.2% and was the only decliner among the broader S&P 500 sectors in the first quarter of this year. Also, equity energy and natural resources mutual funds have decreased 12% and 2.3%, respectively so far this year.

Despite the sequential fall, WTI crude prices averaged around $51.80 per barrel for the three months ended Mar 31, 2017, which was more than 54% higher than the average for the corresponding quarter of 2016. In the year-ago quarter, oil prices averaged around $33.60 a barrel.

Upbeat Earnings Growth Contributes to Bullish Expectations

Following eight back-to-back quarters of earnings decline, analysts said that the sector was likely to get better in the fourth quarter and clock its first positive earnings growth after two years. True to predictions, the sector came out swinging. For the sector components on the S&P 500 index, total Q4 earnings were up 17.1% on 2.0% higher revenues.

The picture looks rather encouraging for the upcoming Q1 earnings season as well. This is not surprising, considering that both oil and gas fell to multi-year lows in the year-ago period. In fact, the 'Energy' sector is set to turn around from a modest loss in the year-earlier period to improving positive earnings this quarter.

Importantly, as per the latest Earnings Outlook, the aggregate dollar amount of earnings increase for the energy sector is the highest of all 16 Zacks sectors. Energy is expected to earn a total of $7.7 billion against a loss $1.6 billion in the year-earlier quarter. The top line is likely to show impressive growth of 32.4% from the first-quarter 2016 level.

5 Best No-Load Energy Funds in Q1

In this context, if we consider the sector’s previous year performance, it made a steady recovery in 2016 after initial hiccups and was the top performing sector in the S&P 500. A solid earnings forecast for the sector in the first quarter is expected to boost optimism over the energy sector’s performance in the ongoing quarter. Against this backdrop, it will be interesting to find out which mutual funds from the space stood out in the first quarter of 2017.

We have highlighted five energy mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We also 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.

These funds also have no sales loads. Moreover, they have encouraging one-year annualized returns, and the minimum initial investment is within $5000.

Fidelity Select Energy FSENX invests the lion’s share 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. The fund focuses on acquiring securities of both domestic and foreign companies. FSENX returned 2.9% in the last one year. The fund has a Zacks Mutual Fund Rank #1.

ICON Natural Resources SICBMX invests heavily in equity securities of companies that are involved in exploration of natural resources and other related commodities. ICBMX seeks growth of capital for the long run. ICBMX returned 15.9% in the last one year. The fund has a Zacks Mutual Fund Rank #1.

Prudential Jennison Natural Resources R JNRRX invests a large part of its assets in equity securities of companies from the natural resources sector. This non-diversified fund invests in not only domestic companies but also in foreign companies. JNRRX returned 5.3% in the last one year. The fund has a Zacks Mutual Fund Rank #2.

Vanguard Energy Investor VGENX invests a major portion of its assets in equity securities of companies from the energy sector. VGENX normally invests in stocks of companies that are engaged in the production, marketing, transmission and research of energy. The fund seeks growth of capital for the long run. VGENX returned 7.6% in the last one year. The fund has a Zacks Mutual Fund Rank #2.

Fidelity Select Natural Resources Portfolio (FNARX - Free Report) invests a bulk of its assets in securities of companies that are primarily involved in operations related to natural resources. The fund generally invests in common stocks of companies located throughout the globe. FNARX returned 6.3% in the last one year. The fund has a Zacks Mutual Fund Rank #2.

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