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. 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 energy sector can attract investors who are looking to diversify their portfolio, to speculate on the demand for oil and fossil fuels, or see it as a hedge against inflation.
- Oil and energy mutual funds are tasked with investing exclusively in that sector by investing a majority of their portfolios in companies related to energy.
- There are several energy funds out there, and here we just look at a few of them. Energy ETFs also exist that may be a more accessible option for individual investors.
Vanguard Energy Fund (VGENX)
The Vanguard Energy Fund was established in 1984, seeking 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. Integrated Oil & Gas, combined with Oil & Gas Exploration & Production, make up 61.4% of the fund's holdings. As of June 2020, the Vanguard Energy Fund manages $4.6 billion in investor assets.
The 10-year annualized return for VGENX is -1.28%. Fund managers are able to sustain a relatively low expense ratio for the fund at 0.32%, which is 72% lower than the category average. 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 and annual turnover is 48% of assets.
Fidelity Select Energy Portfolio (FSENX)
The Fidelity Select Energy Portfolio is supported and managed by Fidelity Investments and was first made available to investors in 1981. Fund managers 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 June 2020, FSENX manages $734 million in assets.
FSENX has generated a 10-year annualized return of -6.29%, with an expense ratio of 0.81%. Shares of the mutual fund are available as no-load and no-deferred sales charges, and no minimum investment. The fund has a turnover rate of 79% of assets/year. Top holdings within FSENX include Chevron, Valero Energy, Exxon Mobil, Phillips 66 and other related companies.
BlackRock Natural Resources Trust Fund (MDGRX)
The BlackRock Natural Resources Trust Fund was established in 1994. It seeks to provide investors with long-term capital growth by investing the majority of its $115.2 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 June 2020, MDGRX has generated a 10-year annualized return of -2.32%, with an expense ratio of 1.19%. 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 include BHP Group, BP PLC, Chevron Corp, Total SA, Exxon Mobil and others.
Integrity Williston Basin/Mid-North America Stock Fund (ICPAX)
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 managers seek 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 $88.87 million as of June 2020.
ICPAX has generated a 10-year annualized return of -2.8%, with an expense ratio of 1.5%. Investors pay a 5% upfront sales charge on all new investments, and a minimum of $1,000 is necessary to purchase shares. It has the highest annual turnover rate of the three, at 70% of assets. Top holdings within ICPAX include Cabot Oil and Gas, Williams Companies Inc., Phillips 66, Halliburton Co., and Exxon Mobil.