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4 Funds to Ride the Strength in the U.S. Energy Sector

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America’s energy sector has been growing by leaps and bounds. This is evident from the fact that oil price has been on the rise and production remains robust. Further, experts are of the view that China’s tariffs on its natural gas imports from the United States will end up harming the Asian giant more.

Moreover, energy production in the United States is expected to breach new records in the third quarter. Under such encouraging conditions, investing in mutual funds having significant exposure to energy companies seems prudent.

China to Lose More Because of Its Tariffs

On Sep 21, China imposed 10% tariff on its natural gas imports from the United States in a bid to hurt the U.S. energy sector. This came right after the Trump administration slapped tariffs of 10% on an additional $200 billion worth of Chinese goods.

On the face of it, the tariffs might look to disrupt growth of the U.S. energy sector. However, as the current 10% level will be increased to 25% from Jan 1, 2019, it will encourage companies in the United States to look for alternatives. Further, America does not export much to China because of the huge U.S.-China trade deficit.

Consequently, China stands to lose if it chooses to impose retaliatory tariffs on goods sourced from the United States. Further, economists opine that these tariffs could also cost the Asian giant about 0.6% of its GDP.

America’s Energy Production to Touch New Highs in Q3

Per the latest report by the American Petroleum Institute on Sep 24, outlook for the U.S. energy industry seems rosy for the third quarter of this year. The report debunks claims that the U.S. energy sector is likely to be hurt by trade war woes. It throws light on a very important fact that the country’s overall petroleum trade balance increased an impressive 56% in the last two months. The metric surged to 4.54 million barrels per day (MBD) in August from 2.9 MBD in June.

However, such events are unlikely to affect growth. Petroleum demand in the United States surged to 20.8 million barrels per day over the past month. This was its strongest demand for any specific month since August 2007 and was driven primarily by motor gasoline, distillate and refinery feedstocks. Additionally, gasoline demand in the country increased to its highest level last month since 1945.

4 Best Choices

Given such circumstances, we have highlighted four energy mutual funds that are poised to gain. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

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.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are usually associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Energy (FSENX - Free Report) invests a huge chunk of its assets in securities of companies that are engaged mainly in the energy field. FSENX seeks growth of capital and invests mainly in common stocks. The fund focuses on acquiring securities of both U.S. and non-U.S. companies.

This Sector – Energy product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 7.8% and 0.7%, respectively. To see how this fund performed compared to its category and other #1 and 2 Ranked Mutual Funds, please click here.

FSENX sports a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.78%, which is below the category average of 1.34%.

Columbia Global Energy & Natural Resources Z (UMESX - Free Report) seeks capital growth for the long run. UMESX invests more than 80% of its assets in securities of domestic and foreign companies. The fund primarily focuses on acquiring securities of companies from natural resources and energy industries.

This Sector – Energy product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 9.8% and 2.1%, respectively. To see how this fund performed compared to its category and other #1 and 2 Ranked Mutual Funds, please click here.

UMESX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 1.10%, which is below the category average of 1.35%.

Vanguard Energy Investor (VGENX - Free Report) 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.

This Sector – Energy product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 9.8% and 1.1%, respectively. To see how this fund performed compared to its category and other #1 and 2 Ranked Mutual Funds, please click here.

VGENX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.38%, which is below the category average of 1.34%.

Fidelity Advisor Energy T (FAGNX - Free Report) seeks growth of capital over the long run. FAGNX invests a chunk of its assets in common stocks of companies engaged in operations related to the energy domain. The fund invests in securities of both U.S. and non-U.S. companies. It is a non-diversified fund and gives precedence to several factors, including financial strength and economic condition, before selecting a company.

This Sector – Energy product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 7.1% and 0.1%, respectively. To see how this fund performed compared to its category and other #1 and 2 Ranked Mutual Funds, please click here.

FAGNX sports a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 1.36%, which is below the category average of 1.37%.

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