Sector investing can be a dream for investors — or a nightmare, depending on the timing and dynamics of the industry.
The case for the energy sector is a compelling story as companies attempt to meet the growing energy demands of our planet over the long-term. As our population grows, and as more people throughout the world join the middle class, demand for more energy will soar. That much is certain.
However, it’s the timing and the choices made here that will no doubt determine success or failure for investors. Recently, the industry has been confronted with headwinds such as rising costs and sluggish demand, not to mention volatility thanks to the Syrian conflict.
But such challenges could offer an opportunity for those investors that take a longer-term view and are well-positioned in the right holdings. Two such energy mutual funds to consider right now are …
Hennessy Gas Utility Index Fund
During the past few years, natural gas has found favor as an energy source and a good case can be made that this trend will continue. Increased regulation and political pressure has dramatically reduced the use of coal as a fuel in the U.S., and this trend is showing no real signs of a reversal.
Hennessy Gas Utility Index Fund (GASFX) is a way to play this specific story.
GASFX is managed by Winsor “Skip” Aylesworth and Ryan Kelley and currently holds 64 stocks. All holdings are members of the American Gas Association, and no individual stock can represent more than 5% of the portfolio. Right now, 84% of this portfolio is invested in the U.S. and about 10% is in Canadian stocks, with the rest spread between the U.K. and Spain.
Top holdings as of right now include Current holdings include Energy Transfer Equity, LP (ETE), Kinder Morgan, Inc. (KMI), Williams Cos. (WMB), Spectra Energy (SE) and National Grid (NGG).
Performance has been solid, with the mutual fund up an annualized 10.8% during the past five years. Morningstar ranks this fund in the top 1% of its category over the period. Income also is a plus; dividends are paid quarterly, and GASFX currently yields a respectable 2.4%.
The Hennessy Gas Utility Index Fund has a reasonable expense ratio of 0.69%, or $69 of every $10,000 invested, and turnover is just 11% annually.
Fidelity Select Energy
John Dowd has been in charge of Fidelity Select Energy (FSENX) since 2006. This fund takes an active approach to the sector and attempts to add value through strong stock selection.
Dowd takes “shoe-leather research” seriously in an attempt to understand where opportunity is located within the energy sector, and the fund’s “go anywhere” approach allows FSENX to hold stocks in the oil, gas, electricity and coal industries. The mutual fund’s mandate also permits it to seek out value in nuclear, geothermal, oil shale and solar power.
Current top holdings include: Exxon Mobil (XOM), Chevron (CVX), Halliburton (HAL), Occidental Petroleum (OXY) and National-Oilwell Varco (NOV).
This offering is up 19.5% over the last year and 13.3% annually over the past decade, according to Morningstar data.
Turnover here is recently 80% in this $2 billion portfolio, and FSENX charges 0.82% in expenses.
As of this writing, Bill Wysor did not hold a position in the aforementioned securities.