The natural resources sector includes securities of companies engaged in extractive practices of commodities, including mining for coal, metallic ore, sand, gravel and oil shale. It may include logging of naturally occurring trees and drilling for oil and gas. As the world becomes more developed, the need for the extraction and processing of natural resources increases, resulting in investment opportunities from a myriad of sources.
Due to the continuous demand from developing countries and new global infrastructure, plus repairs that require the use of raw materials, natural resource investing has long been included as a staple in strategic asset allocation. Investors benefit from natural resources being a store of value, especially during times of rising inflation or currency depreciation. Natural resource investments have a low correlation with other broad sectors, making them a hedge against market downturns in certain instances.
Although natural resources have their place in investor portfolios, the industry carries a degree of risk. Adverse economic, political and regulatory developments take a toll on natural resource securities over time, and volatility in these securities is a daily occurrence. A geological risk is also a factor that can directly impact the value of securities in the sector. Due to these potential pitfalls, investors are best suited to utilize natural resources when other equity and bond securities are included in their portfolio as part of a well-balanced asset allocation. Investing in mutual funds focused on providing exposure to the natural resources sector is a smart way for investors to gain access to the industry while diversifying holdings.
Fidelity Select Chemicals Portfolio
The Fidelity Select Chemicals Portfolio is a mutual fund offered to investors by Fidelity Investments and managed by Rick Malnight. Since its inception in 1985, FSCHX has sought capital appreciation by investing the majority of investor assets in the common stock of companies principally engaged in the research, development, manufacture or marketing of products and services directly related to the chemical process industry. Fund managers can disperse the fund's $1.4 billion assets among domestic and foreign issuers, all of which are analyzed for industry position and overall financial condition.
FSCHX has generated a 10-year annualized return of 13.65%, the highest in the natural resources category for mutual funds. It has an expense ratio of 0.77%. Investors are not hit with an upfront or deferred sales load and without a minimum investment amount required. Top holdings within FSCHX include DowDuPont at 25.1%, LyondellBasell Industries NV at 9.3% and The Chemours Co. at 7%.
AllianzGI Global Water Fund
The AllianzGI Global Water Fund is supported by the Allianz Funds group and was established in 2008. The fund manager, Andreas Fruschki, and the investment team seek long-term capital appreciation by investing a minimum of 80% of fund assets in common stock and other equity securities of companies represented in at least one of the following indices: the S&P Global Water Index, the NASDAQ OMX US Water Index or the S-Network Global Water Index. Companies engaged primarily in water-related activities not listed on the aforementioned indices may also be included at the fund manager's discretion. As of Oct. 2018, AWTAX manages $663 million in assets.
AWTAX has generated a five-year annualized return of 4.8%, with an expense ratio of 1.22%. Investors are charged an upfront sales load of 5.5%, but no deferred sales charge is imposed at the time shares are redeemed. A minimum investment of $1,000 is required for both nonqualified accounts and IRAs. Top holdings within AWTAX include American Water Works Company at 10.3%, Xylem at 9.1%, Danaher Corporation at 6.6% IDEX Corporation at 6.6% and Veolia Environnement SA at 6%.
ICON Natural Resources Fund
The ICON Natural Resources Fund is made available to investors and supported by the ICON funds group. It has an inception date of 1997. Fund manager Rob Young, along with the portfolio management team, seeks long-term capital appreciation by investing a minimum of 80% of fund assets in equity securities of companies related to natural resources. Both common stock and preferred stock may be included in the fund's investment mix, and there are no restrictions as it relates to market capitalization. As of Oct. 2018, this non-diversified fund manages $74.3 million in investor assets.
ICBMX has generated a 10-year annualized return of 3.53%, with an expense ratio of 1.51%. A minimum initial investment of $1,000 is necessary for both qualified and nonqualified accounts. Top holdings within ICBAX include Rosneft Oil Co GDR at 5.4%, Mondi PLC at 5.2% and PJSC Lukoil ADR at 5.2%.
Dreyfus Natural Resources Fund
The Dreyfus Natural Resources Fund is made available to investors by the Dreyfus Investment group and was established in 2003. Robin Wehbe, the fund's portfolio manager since 2009, along with the investment management team, seeks long-term capital appreciation by investing the majority of fund assets in stocks of companies engaged in natural resource extraction. Both growth and value stocks are included in the investment mix, and there are no restrictions as to market capitalization. Fund managers must invest at least 80% of the fund's $444 million assets in natural resource or natural resource-related companies.
As of Oct. 2018, DNLAX has generated a 10-year annualized return of 3.31%, with an expense ratio of 1.36%. An initial investment cannot be smaller than $1,000 for nonqualified accounts as well as IRAs, and investors are charged an upfront sales load of 5.75% for each new investment. Top holdings within DNLAX include Total SA 6.6%, Nutrien Ltd at 5.9% and Vale S.A. at 5.8%.
T. Rowe Price New Era Fund
The T. Rowe Price New Era Fund is one of the oldest natural resources mutual funds, with an inception date of 1969. Fund manager Shawn Driscoll, along with the portfolio management team, seeks to provide investors with long-term capital growth by investing a minimum of 66% of the fund's $3.8 billion assets in common stock of natural resource companies. PRNEX may also invest in growth-tilted companies not affiliated with the natural resources industry at the fund manager's discretion.
As of Oct. 2018, PRNEX has generated a 10-year annualized return of 2.62% and has an expense ratio of 0.69%. Investors have the ability to purchase and redeem shares of PRNEX without a sales charge assessed, but a minimum initial investment of $2,500 is required for both IRAs and nonqualified accounts. Top holdings within PRNEX include Total SA at 4.8%, EOG Resources at 3.1% and Occidental Petroleum Corp at 2.95%.