On Mar 21, oil prices registered the best two-day increase since last November, following a surprise fall in domestic crude inventories and renewed geopolitical uncertainty. After weeks of rise, domestic crude inventories declined recently, which boosted oil prices.
Additionally, Saudi Crown Prince Mohammed bin Salman’s meeting with President Trump during the Saudi prince’s two-week visit to the U.S. also raised fears of Trump re-imposing economic sanctions on Iran, which were lifted on the first month of 2016.
This move may affect crude production of OPEC’s third biggest oil producer. This development along with other OPEC countries and Russia’s continued capping of crude output had a positive impact on oil prices.
Following the recent recovery in oil prices, mutual funds that have significant exposure to the energy sector could be solid investments.
U.S Crude Stockpiles Post Surprise Slump
The U.S. Energy Information Administration (EIA) reported that U.S. commercial crude oil inventories fell 2.6 million barrels to 428.3 million for the week ended Mar 16. U.S. commercial crude oil inventories posted their first weekly fall since the week ended Feb 16. Per EIA, domestic crude oil inventories slumped mainly because crude imports plunged 500,000 barrels per day (bpd) to an average of 7.08 million bpd last week.
The EIA also reported that total motor gasoline inventories and distillate fuel inventories slumped by 1.7 million barrels and 2 million barrels, respectively. Decline in domestic crude and gasoline inventories led both WTI and Brent crude to climb 2.5% and 3% to $65.17 per barrel and $69.47 a barrel respectively on Mar 21.
Geopolitical Tensions Benefits Oil Prices
On Mar 20, oil prices advanced before the meeting between Trump and Saudi Arabia’s crown prince. Trump said that Saudi Arabia is a “very wealthy nation” and the U.S. will be getting some of the country’s wealth “in the form of the purchase of the finest military equipment anywhere in the world.”
Additionally, the Saudi prince said that “Saudi Arabia does not want to acquire any nuclear bomb,” but if neighbor “Iran developed a nuclear bomb,” Saudi Arabia will “follow suit as soon as possible.” Prince Salman said this during an interview with CBS, just a week before his two-week meeting with the U.S. President.
These developments, raised concerns of a possible end of the provisional deal reached between Iran and P5+1 during 2015, with Trump imposing nuclear sanctions again on Iran within two months. Further, Saudi Arabia and other OPEC members, and Russia continued to trim crude production by 1.8 million bpd till the end of this year.
Following these arrangements, supply concerns reduced and oil prices increased. Both WTI and Brent crude prices advanced around 5% and 5.2%, respectively, on Mar 19 and 20, registering their best two-day increase since Nov 6.
5 Best Energy Funds to Buy
Against this backdrop, 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 witnessed encouraging returns during their last bull market, and their minimum initial investment is within $5000.
Best Energy Mutual Funds to Buy as Oil Shines: Dreyfus Natural Resources Fund (DNLAX)
Dreyfus Natural Resources Fund Class A (MUTF:DNLAX) seeks appreciation of capital for the long run. DNLAX invests more than 80% of its assets in stocks issued by companies engaged in natural resources and natural resources-related sectors. The fund may invest in non-U.S. securities, including emerging markets securities.
In the ongoing bull market, DNLAX had returned 16%. Annual expense ratio of 1.35% is lower than the category average of 1.38%. The fund has a Zacks Mutual Fund Rank #1.
Best Energy Mutual Funds to Buy as Oil Shines: Vanguard Energy Fund (VGENX)
Vanguard Energy Fund (MUTF: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 and energy fuels. The fund seeks growth of capital for the long run.
In this bull market period that started in 2009, VGENX has returned 19.3%. Annual expense ratio of 0.41% is lower than the category average of 1.35%. The fund has a Zacks Mutual Fund Rank #2.
Best Energy Mutual Funds to Buy as Oil Shines: Columbia Global Energy & Natural Resources Fund (UMESX)
Columbia Global Energy & Natural Resources Fund (MUTF:UMESX) seeks capital growth for the long run. UMESX invests a huge part of its assets in securities of domestic and foreign companies. The fund primarily focuses on acquiring securities of companies from the natural resources and energy industries. Moreover, UMESX invests more than half of its assets in petroleum and crude oil companies.
In the ongoing bull market, UMESX had returned 17.6%. Annual expense ratio of 1.10% is lower than the category average of 1.38%. The fund has a Zacks Mutual Fund Rank #1.
Best Energy Mutual Funds to Buy as Oil Shines: Franklin Natural Resources Fund (FNRAX)
Franklin Natural Resources Fund (MUTF:FNRAX) seeks growth of return. The fund invests a bulk of its assets equity as well as debt securities of companies involved in the natural resources sector. FNRAX may also invest part of its assets in those small-cap companies whose market-cap is lower than $1.5 billion at the time of investment.
During the last bull market, FNRAX has returned 19.9%. Annual expense ratio of 0.81% is lower than the category average of 1.38%. The fund has a Zacks Mutual Fund Rank #2.
Best Energy Mutual Funds to Buy as Oil Shines: Fidelity Select Energy Portfolio (FSENX)
Fidelity Select Energy Portfolio (MUTF:FSENX) invests a large chunk of its assets in securities, including common stocks of companies that are involved mainly in the energy industry. 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.
In this bull market, FSENX has returned 21.9%. Annual expense ratio of 0.79% is lower than the category average of 1.35%. The fund has a Zacks Mutual Fund Rank #1.
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