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Value Line’s Energy/Natural Resources objective group contains funds that have a stated policy of investing at least 50% of their assets in oil and natural gas, energy services (including oil and gas drilling), chemicals, and forest products. Generally speaking, most funds in this group will have substantially over half of their assets invested in these industries.

Note that this group does not include funds that invest in utilities, which could be confused with the term energy, or in precious metals funds, which one might consider a natural resource. Those two groups have their own objective groups and are subject to different dynamics.
As with most broad-based groupings, there are index offerings in this space, such as Vanguard Energy Index Fund (VENAX). In addition to the index offering, Vanguard offers an actively managed fund: Vanguard Energy Fund (VGENX). Funds that focus on a subset of the broad group are also included, such as energy services, (Rydex Energy Services Fund; RYVIX), while others that take a broader focus (Franklin Natural Resources; FRNRX). There are, of course, those that specifically invest across the globe (U.S. Global Investors Global Resources Fund; PSPFX). However, in reality, most funds in this space have a broader reach even if they only invest in U.S.-listed companies—Exxon Mobil (XOM - Free Exxon Stock Report), for example, has operations around the globe.

The Energy/Natural Resources objective group, however, generally invests in things that we need for everyday living. And while this may provide long-term benefits, many stocks here are subject to price swings based on frequently volatile commodity prices. So, while this group may interest conservative investors because of the basic need for its products, it is not for the faint of heart and probably shouldn’t make up a large chunk of an investor’s portfolio. Indeed, the group carries our highest Risk Rank of 5. That said, the commodity exposure of the securities in which these funds invest can often provide an inflation hedge and, at times, a safe haven when investors flock to “hard assets”.

Over the long term, the Energy/Natural Resources objective group has been a very strong performer relative to the broader market, as measured by the S&P 500 Index. For the 10-year period ended April 30, 2012, the group had an annualized return of 10.0%, while the S&P 500 Index reported an annualized gain of 4.7%. Over the trailing five- and three-year periods, the group had a loss of 0.5% and a gain of 12.7% respectively, while the S&P 500 Index reported annualized gains of 1.0% and 19.5% respectively. During the past year, however, the Energy/Natural Resources Equity Group reported a loss of 19.6% compared with a gain of 4.7% for the S&P 500 Index. 

Year to date through April 30, 2012, the Energy/Natural Resources objective group has underperformed, as compared to the broader market, lagging the S&P 500 Index.  It reported a gain of 3.6% versus an increase of 11.9% for the Index. 

That said, one fund that started the year off with excellent results (through April 30, 2012) is Aberdeen Global Natural Resources Fund (GGNAX). This fund’s investment objective is long-term capital growth. Approximately 80% of its net assets (plus the amount of any borrowing for investment purposes) are invested in equity securities issued by U.S. and foreign companies, including those from emerging markets, with business operations in or related to activities in natural resources industries. These include companies involved in the production, extraction, processing, distribution, and transportation of natural resources of any kind. The fund will also invest in companies that provide services directly related to this activity. Natural resources include, but are not limited to, precious metals (e.g., gold, platinum, and silver); ferrous and nonferrous metals (e.g., iron, aluminum, and copper); strategic metals (e.g., uranium and titanium); hydrocarbons (e.g., coal, oil, and natural gas); chemicals; paper and forest products; and environmental services and real estate. The fund also invests at least 40% of its assets in companies that have their principal place of business outside the U.S.  

Another fund with a better-than-average year-to-date return through April 30, 2012, is Putnam Global Natural Resources Fund A (EBERX). This fund seeks capital appreciation, and, under normal market conditions, invest at least 80% of its assets in stocks of natural resources companies in markets around the world. The portfolio can include businesses of all sizes and at different stages of growth. Management focuses primarily on large and midsize companies.

The fund uses bottom-up fundamental analysis, evaluating a company’s intrinsic value, financial strength, growth potential, competitive position in its industry, projected future earnings, cash flows, and dividends. The fund may also use futures, options, warrants, and swap contracts for both hedging and non-hedging purposes, and may engage in short sales of securities. The portfolio turnover rate as of December 31, 2012 was 90%.

A third fund with a relatively good year-to-date return is U.S. Global Investors Global Resources Fund (PSPFX). This fund’s objective is to seek long-term growth of capital plus protection against inflation and monetary instability. 

To achieve this objective, the fund invests at least 80% of its assets in the securities of companies involved in the natural resources industries.  These include natural gas, integrated oil, oil and gas drilling, oil and gas exploration and production, oil and gas refining, oilfield equipment/services, aluminum, chemicals, diversified metals and coal mining, iron and steel, paper and forest products, and uranium. 

As of December 30, 2011, the fund held approximately 24% of its assets in oil exploration and production, 21% in mining, 8% in chemicals, 6% in pipelines, and 6% in oil and gas services, 25% other sectors, and 10% cash and equivalents. 

In the table below, we have listed 10 top-performing funds, relative to the objective group, through April 30, 2012 that we follow in our Fund Advisor database.

10 Top Energy/Natural Resources Funds Performance

 

Fund Name

Ticker

% Year-to-date

Total Return

% 1 Month

Total

Return

% 3

Month

Total

Return

% 6 Month

Total

Return

% 5 Year

Total

Return

Annualized

DWS Clean Technology A

WRMAX

11.00

-1.91

2.72

6.00

  

Aberdeen Natural Resources A

GGNAX

7.26

-1.00

-1.78

3.72

-0.63

Putnam Global Natural Resources A

EBERX

6.68

-0.69

-0.98

3.39

-1.07

Allianz RCM Global Resources A

ARMAX

6.54

-1.66

-1.30

1.85

-0.54

  

RS Global Natural Resources A

RSNRX

6.13

2.45

1.07

-0.04

2.54

US Global Investors Global Resources

PSPFX

5.77

-1.39

-1.10

-1.98

-0.81

Fidelity Select Energy Services

FSESX

5.34

0.44

-1.31

0.29

-1.15

  

Calvert Global Alternative Energy A

CAEIX

5.02

-6.05

-1.80

-7.93

  

Guiness Atkinson Global Energy

GAGEX

5.13

-2.13

-0.48

-1.40

2.32

T. Rowe Price New Era

PRNEX

5.11

-0.85

-1.18

-0.16

0.25

Energy/Natural Resources Objective Group

  

3.59

-1.43

-2.45

-1.31

-0.48

  

At the time of this article's writing, the author did not have positions in any of the funds mentioned.