3 Energy Funds To Gain Big From Natural Gas' Decline

Global natural gas prices witnessed considerable decline during the third quarter, owing to lower demand and rising supplies. As a matter of fact, investors looking forward to make the most of this dip in natural gas prices would do well to buy mutual funds with significant exposure to the space.

Inventories Rise, Demand Plummets

According to the latest report by U.S. Energy Information Administration, natural gas stockpiles in underground storage in the lower 48 states increased by 102 billion cubic feet (Bcf) for the week ended Sep 20.

Total stockpiles for the said week stood at 3,205 Bcf. This also marks a 16.1% rise in natural gas stockpiles from the year-ago period. Needless to say, natural gas prices continued to trend lower through Oct 2.

The larger-than-expected climb in U.S. stockpiles led to a slump in the natural gas futures market. In fact, natural gas futures marked a 12th consecutive session decline on Oct 2. This also indicated the longest losing streak on record, based on data dating back to November 1990.

This decline in natural gas prices isn’t all bad news. It simply means that natural gas-heavy downstream companies are well positioned to gain. Why? This is because these companies purchase raw natural gas and process and purify it for commercial use. Therefore lower prices of natural gas will significantly lessen the purchasing costs for these companies, thus helping them garner profit.

Our Choices

We have, therefore, selected three mutual funds that invest in energy companies that could gain in the current scenario. All of these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging year-to-date returns. Additionally, the minimum initial investment is within $5,000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Natural Resources Portfolio FNARX fund aims for capital growth. The fund invests the majority of its assets in securities of companies that own or develop natural resources, or provide goods and services to these companies. The fund usually invests in common stocks. Chevron (NYSE:CVX) and The Williams Companies (NYSE:WMB) are among the fund’s top 10 investments.

This Zacks sector – Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FNARX has an annual expense ratio of 0.81%, which is below the category average of 1.40%. It has returned 8.8% on a year-to-date basis. FNARX has no minimum initial investment.

T. Rowe Price New Era Fund PRNEX seeks to provide capital appreciation over a long period of time. The fund mostly invests in common stocks of companies that are engaged in activities related to natural resources. These activities could include owning, refining, operating servicing or transporting natural resources etc. The fund also invests a minority of its assets in stocks of selected non-resource growth companies. Air Products and Chemicals (NYSE:APD) and Total SA (PA:TOTF) are among the fund’s top 10 investments.

This Zacks sector – Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRNEX has an annual expense ratio of 0.69%, which is below the category average of 1.37%. It has returned 5.3% on a year-to-date basis. PRNEX has a minimum initial investment of $2500.

Vanguard Energy Fund Investor Shares VGENX fund seeks to provide long-term capital growth. The fund invests the majority of its assets in securities of companies engaged in activities in the energy industry, which could include exploration, production and transmission of energy etc. The fund mostly invests in common stocks of companies. Chevron and Marathon Petroleum (NYSE:MPC) are among the fund’s top 10 investments.

This Zacks sector – Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VGENX has an annual expense ratio of 0.37%, which is below the category average of 1.40%. It has returned 3% on a year-to-date basis. VGENX has a minimum initial investment of $3000.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week.

Get it free >>