Companies that operate within the oil and gas industry are plentiful, with activities including drilling, extraction, oilfield services, oil refining and transportation. Oil is a vital energy product in a vast number of industries around the world, and while oil alternatives begin to make headway within the energy market, demand for oil remains high. The oil industry provides investors an opportunity to participate in a growth-oriented equity market that boasts exponential profit margins for the long-term.
Despite the individual and commercial demand for oil products on a global scale, the oil industry comes with a great deal of risk to investors. The price of oil continually fluctuates resulting in constant volatility in equity holdings of oil companies. Additionally, profitability in new oil exploration or drilling efforts is far from a guarantee, as it is difficult to pinpoint how much oil is available in a specific location prior to investing the high amount of capital necessary to begin a new drilling endeavor. New entrants to the energy market also pose a threat to oil companies for the long-term. Investors who want to participate in the oil industry must be aware of these risks prior to investing, regardless of the potential for future returns.
Investing in the oil industry can be done through the purchase of industry-focused mutual fund shares. While there are a number of mutual funds that have substantial holdings in the oil sector, the majority of funds falls under natural resources or energy categories.
The Vanguard Energy Fund was established in 1984 and is managed by Karl E. Bandtel. It seeks to provide long-term capital appreciation by investing a minimum of 80% of fund assets in common stock of companies primarily engaged in activities related to the energy industry. Companies may include those that conduct oil exploration, production or transmissions of energy or fuel; produce or service components of products necessary to complete those tasks; or conduct energy research or energy conservation. As of September 2015, the Vanguard Energy Fund manages $9 billion in investor assets.
The 10-year annualized return for VGENX is 4.03%. Fund managers are able to sustain a relatively low expense ratio for the fund at 0.37%, which is far lower than the category average of 1.45%. Investors do not pay an upfront or deferred sales load for investment in the fund, but a minimum initial investment of $3,000 is required. Top holdings within VGENX include Exxon Mobil Corporation at 9.02%; Chevron Corporation at 4.66%; Royal Dutch Shell PLC at 4.38%; Pioneer Natural Resources Company at 4.26%; and Schlumberger N.V. at 3.60%.
The Fidelity Select Energy Portfolio is supported and managed by Fidelity Investments and was first made available to investors in 1981. Fund manager John Dowd has worked with the portfolio management team for the fund since 2006, with a focus on capital appreciation for the long-term. FSENX invests a minimum of 80% of fund assets in securities of companies engaged in energy field activities, including oil, gas, electricity, coal and new sources of energy. This nondiversified fund utilizes fundamental analysis to determine investability of each company security based on financial condition and industry position. As of September 2015, FSENX manages $1.94 billion in assets.
FSENX has generated a 10-year annualized return of 3.79%, with an expense ratio of 0.79%. Shares of the mutual fund are available as no-load and no-deferred sales charges, but a minimum investment of $2,500 is required. Top holdings within FSENX include Exxon Mobil Corporation at 14.61%; Schlumberger N.V. at 9.46%; EOG Resources, Inc. at 6.06%; Valero Energy Corporation at 5.11%; and Anadarko Petroleum Corporation at 4.42%
The BlackRock Natural Resources Trust Fund was established in 1994 and has been managed by Robert Shearer since 1997. It seeks to provide investors with long-term capital growth by investing the majority of its $331.15 million in assets in securities of companies with substantial natural resource assets. Fund managers tend to include companies involved in energy, chemicals, oil, gas, paper, mining, steel and agricultural products.
As of September 2015, MDGRX has generated a 10-year annualized return of 2.72%, with an expense ratio of 1.06%. Investors must pay an upfront sales load of 5.25% with any new purchase of shares, although a deferred sales charge is not assessed at the time of redemption. A minimum investment of $1,000 is also required for both qualified and nonqualified accounts. Top holdings within MDGRX include EOG Resources, Inc. at 7.12%; Exxon Mobil Corporation at 5.40%; Schlumberger N.V. at 3.74%; Chevron Corporation at 3.63%; and Suncor Energy Inc. at 3.60%.
The Waddell & Reed Advisor Energy Fund is made available to investors as part of the Waddell & Reed family of mutual funds, and was established in 2006. Fund manager, David Ginther, seeks to provide capital growth and long-term appreciation by investing at least 80% of fund assets in securities of companies actively engaged in the energy sector. Companies included in the fund operate in oil exploration, discovery, production, distribution and infrastructure, and may be considered to have either a value or growth tilt. Up to 100% of the fund's $249.21 million in assets can be invested in foreign securities at the fund manager's discretion.
As of September 2015, WEGAX has generated a five-year annualized return of 3.92%, with an above-average expense ratio of 1.57%. Investors are charged a 5.75% upfront sales load on all new share purchases, and an initial investment of $750 is required. Top holdings within WEGAX include Schlumberger N.V. at 3.96%; Baker Hughes Incorporation at 3.65%; Halliburton Company at 3.58%; Cimarex Energy Corporation at 3.34%; and EOG Resources, Inc. at 2.95%.
The Integrity Williston Basin/Mid-North America Stock Fund is offered to investors through the Integrity family of mutual funds and has an inception date of 1999. Fund manager, Michael L. Morey, alongside the investment management team, seeks to provide investors with long-term capital appreciation by investing the majority of fund assets in the stock of domestic and foreign issuers participating or benefiting in the development of the resources located in the Williston Basin area. Additionally, the fund may invest in the equity securities of companies benefiting or participating in Mid-North America resources. A portion of equity securities included in the fund may be for companies that have yet to move past the development stage or those without significant revenues. Assets within the fund amount to $686.58 million.
As of September 2015, ICPAX has generated a 10-year annualized return of 5.92%, with an expense ratio of 1.39%. Investors pay a 5% upfront sales charge on all new investments, and a minimum of $1,000 is necessary to purchase shares. Top holdings within ICPAX include Kinder Morgan, Inc. at 6.17%; Baker Hughes Incorporated at 5.68%; Phillips 66 at 4.80%; Williams Companies, Inc. at 4.56%; and Diamondback Energy, Inc. at 4.38%.