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The U.S. energy sector has recovered immensely from its dip in late December, registering impressive gains through the first three months of this year.
China’s reviving economy, optimism over the U.S.-China trade deal, President Trump’s sanctions against Iran and Venezuela’s oil exports are some of the factors contributing to oil’s new-found strength. Certain geopolitical issues in Libya and the energy industry preparing forInternational Maritime Organization’s 2020 regulations also helped boost oil prices.
Energy Sector’s Q1 Journey
The energy sector’s benchmark index — the Energy Select Sector SPDR Fund (XLE) — gained a remarkable 13.1% in Q1. Brent crude oil and U.S. oil price benchmark, West Texas Intermediate, also jumped significantly from their late December lows of $50.47 and $52.62 a barrel, respectively.
Catalysts Driving Oil Prices Higher
Oil has benefitted significantly this year from Organization of the Petroleum Exporting Countries’ (OPEC) supply cuts and Donald Trump’s sanctions against oil producers.
OPEC’s supply cuts will remain in place till June at least, after it extended the supply cuts that have been in effect since January. OPEC and its partners’ decision to curb oil production along with Russia’s support of the same has resulted in a 1.2 million barrels per day cut, which will be the norm till the organization decides otherwise in its June meeting.
President Trump’s sanctions on Iran and Venezuela, which are members of OPEC, are also pushing oil prices higher. Both these sanctions are highly driven by the aim to change the political scenario in these countries, thereby slashing their main source of revenues, which are oil exports.
Secondly, a major market-driver, the U.S.-China trade deal, has influenced oil markets very well this year. Oil prices started recovering after the United States and China decided to go for a 90-day truce effective Jan 1.
The development in trade talks and the growing optimism around a favorable trade agreement between the two countries so far have been beneficial for oil prices. In addition, the ongoing civil war and renewed violence in Libya are threatening the country’s oil output and exports. This is a particularly a bullish factor for oil prices as well.
Finally, the IMO’s regulation that goes into effect in January 2020 demands that fuel low on sulphur content be used by seagoing vessels to reduce pollution. This regulation could boost the U.S. energy industry greatly, since it has been fulfilling the federal low-sulphur fuel standards for a long time.
Therefore, given the encouraging factors pushing the energy sector, it would be prudent to invest in a few energy mutual funds at present. But why invest in mutual funds and not stocks?
This is because reduced transaction costs and diversification of portfolio without several commission charges that are 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).
Our Choices
We have selected three mutual funds from the energy sector that carry a Zacks Mutual Fund Rank #2 (Buy). Moreover, these funds have encouraging three-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.
Vanguard Energy Fund Investor Shares (VGENX - Free Report) invests the majority of its assets in common stocks of companies that operate in the energy industry. The fund aims to provide capital appreciation over the long term. VGENX has a minimum initial investment of $3000.
This Zacks sector –Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
VGENX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 0.38%, which is below the category average of 1.37%. VGENX has three-year annualized returns of 6.7%.
T. Rowe Price New Era Fund (PRNEX - Free Report) aims for capital growth over a long period of time. The fund usually invests the maximum part of its net assets in common stocks of natural resources companies. The non-diversified fund may also invest in other growth companies that its managers believe have great potential for earnings growth but may not own or develop natural resources. The fund has a minimum initial investment of $2500.
This Zacks sector –Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PRNEX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 0.69%, which is below the category average of 1.39%. PRNEX has three-year annualized returns of 6.3%.
Putnam Global Natural Resources Trust Class Y fund aims for capital growth. The fund mostly invests in common stocks of mid- and large-capitalization companies that its manager thinks has good investment potential. The fund invests most of its assets in securities of companies in the energy sector or other natural resources industries. The non-diversified fund has no minimum initial investment.
This Zacks sector –Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PGRYX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 1.05%, which is below the category average of 1.39%. PGRYX has three-year annualized returns of 2.3%.
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3 Noteworthy Energy Mutual Funds for Q2
The U.S. energy sector has recovered immensely from its dip in late December, registering impressive gains through the first three months of this year.
China’s reviving economy, optimism over the U.S.-China trade deal, President Trump’s sanctions against Iran and Venezuela’s oil exports are some of the factors contributing to oil’s new-found strength. Certain geopolitical issues in Libya and the energy industry preparing forInternational Maritime Organization’s 2020 regulations also helped boost oil prices.
Energy Sector’s Q1 Journey
The energy sector’s benchmark index — the Energy Select Sector SPDR Fund (XLE) — gained a remarkable 13.1% in Q1. Brent crude oil and U.S. oil price benchmark, West Texas Intermediate, also jumped significantly from their late December lows of $50.47 and $52.62 a barrel, respectively.
Catalysts Driving Oil Prices Higher
Oil has benefitted significantly this year from Organization of the Petroleum Exporting Countries’ (OPEC) supply cuts and Donald Trump’s sanctions against oil producers.
OPEC’s supply cuts will remain in place till June at least, after it extended the supply cuts that have been in effect since January. OPEC and its partners’ decision to curb oil production along with Russia’s support of the same has resulted in a 1.2 million barrels per day cut, which will be the norm till the organization decides otherwise in its June meeting.
President Trump’s sanctions on Iran and Venezuela, which are members of OPEC, are also pushing oil prices higher. Both these sanctions are highly driven by the aim to change the political scenario in these countries, thereby slashing their main source of revenues, which are oil exports.
Secondly, a major market-driver, the U.S.-China trade deal, has influenced oil markets very well this year. Oil prices started recovering after the United States and China decided to go for a 90-day truce effective Jan 1.
The development in trade talks and the growing optimism around a favorable trade agreement between the two countries so far have been beneficial for oil prices. In addition, the ongoing civil war and renewed violence in Libya are threatening the country’s oil output and exports. This is a particularly a bullish factor for oil prices as well.
Finally, the IMO’s regulation that goes into effect in January 2020 demands that fuel low on sulphur content be used by seagoing vessels to reduce pollution. This regulation could boost the U.S. energy industry greatly, since it has been fulfilling the federal low-sulphur fuel standards for a long time.
Therefore, given the encouraging factors pushing the energy sector, it would be prudent to invest in a few energy mutual funds at present. But why invest in mutual funds and not stocks?
This is because reduced transaction costs and diversification of portfolio without several commission charges that are 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).
Our Choices
We have selected three mutual funds from the energy sector that carry a Zacks Mutual Fund Rank #2 (Buy). Moreover, these funds have encouraging three-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.
Vanguard Energy Fund Investor Shares (VGENX - Free Report) invests the majority of its assets in common stocks of companies that operate in the energy industry. The fund aims to provide capital appreciation over the long term. VGENX has a minimum initial investment of $3000.
This Zacks sector –Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
VGENX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 0.38%, which is below the category average of 1.37%. VGENX has three-year annualized returns of 6.7%.
T. Rowe Price New Era Fund (PRNEX - Free Report) aims for capital growth over a long period of time. The fund usually invests the maximum part of its net assets in common stocks of natural resources companies. The non-diversified fund may also invest in other growth companies that its managers believe have great potential for earnings growth but may not own or develop natural resources. The fund has a minimum initial investment of $2500.
This Zacks sector –Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PRNEX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 0.69%, which is below the category average of 1.39%. PRNEX has three-year annualized returns of 6.3%.
Putnam Global Natural Resources Trust Class Y fund aims for capital growth. The fund mostly invests in common stocks of mid- and large-capitalization companies that its manager thinks has good investment potential. The fund invests most of its assets in securities of companies in the energy sector or other natural resources industries. The non-diversified fund has no minimum initial investment.
This Zacks sector –Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PGRYX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 1.05%, which is below the category average of 1.39%. PGRYX has three-year annualized returns of 2.3%.
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 >>