The natural resources sector includes companies engaged in the extraction of commodities such as coal, metallic ore, sand, gravel, and oil shale. It may also include logging and drilling for oil and gas. Natural resource investing has long been a staple in strategic asset allocation. Natural resources act as stores of value, especially during times of rising inflation or currency depreciation.
Nevertheless, the industry carries risks such as adverse economic, political, and regulatory developments. Due to these potential pitfalls, investing in natural resources only makes sense as part of a well-balanced portfolio. One way to access this industry is through mutual funds. Below we review five of them.
- Natural resource investing involves investing in companies that extract commodities, such as oil and gravel.
- One of the easiest ways to get exposure to the natural resource sector is mutual funds.
- The biggest natural resource mutual funds include Fidelity Select Chemicals Portfolio and Allianz Global Water Fund.
1. Fidelity Select Chemicals Portfolio
The Fidelity Select Chemicals Portfolio (FSCHX) is a mutual fund that seeks capital appreciation in companies engaged in the research, development, manufacture, or marketing of products and services directly related to chemicals. The fund was founded in 1985 and has been managed by David S. Wagner since August 2019.
As of February 2022, the fund had $784 million in assets. Its one-year return was 24.8%, compared with 23.3% for the S&P 500 Index and 19.7% for the MSCI U.S. IM Chemicals 25/50 Index. The fund has an expense ratio of 0.79%, though investors are not hit 12b-1 fees, and no minimum investment is required.
Among the top holdings are specialty chemicals with a 43% weighting and industrial gases at 26%.
2. Allianz Global Water Fund
The Allianz Global Water Fund invests in companies engaged primarily in the business of water resource management or improving the supply, efficiency, or quality of water. Allianz launched the fund in August 2018.
As of February 2022, the fund had just over $1 billion in assets. Its one-year return was 4.9%, compared with 8.7% for its benchmark, the MSCI ACWI Index (Total Return Net in USD). The Allianz Global Water Fund charges a front-end load of 5% and an "all-in fee" of 2.35% per year.
Top holdings include the American Water Works Company (AWK), Geberit, and Xylem (XYL).
3. Icon Natural Resources and Infrastructure Fund
The ICON Natural Resources and Infrastructure Fund invests in companies in the energy, industrials, materials, and utility sectors. Fund managers use a quantitative methodology to identify companies they believe are underpriced relative to their value.
ICON founded the fund in 1997. For 2021, the ICON Natural Resources and Infrastructure Fund's one-year return was 30.6%, compared with 29.5% for the S&P 1500. It had a 1.35% net expense ratio.
Top holdings include Diamondback Energy (FANG), Martin Marietta Materials (MLM), and Chart Industries (GTLS).
4. BNY Mellon Natural Resources Fund
The BNY Mellon Natural Resources Fund is focused on long-term capital appreciation and invests in foreign companies. The fund was founded in 2003.
As of February 2022, the BNY Mellon Natural Resources Fund had $618.5 million in assets. The fund returned 42.6% over the last year (ended Jan. 31, 2022), compared with 29.5% for the S&P Global Natural Resources Index. Total expenses came in at 1.2%.
Top holdings include Occidental Petroleum (OXY), Hess (HES), and Valero Energy (VLO).
5. T. Rowe Price New Era Fund
The T. Rowe Price New Era Fund invests at least two-thirds of its assets in natural resource companies that stand to benefit from rising inflation. It favors companies that can operate profitably when both labor costs and prices are rising. The fund was founded in 1969, making it one of the oldest funds to focus on natural resources.
As of Jan. 31, 2022, the New Era Fund had $3.1 billion in assets. The fund gained 25.3% in 2021, which underperformed the 31.4% gain registered by its benchmark, the MSCI World Select Natural Resources Index. Net fees for investor class shares are 0.72%.
Top holdings include ConocoPhillips (COP), Total (TOT), and EOG Resources (EOG).