Recent energy prices have spurred more than just conversation–in the last year, mutual funds focused on energy stocks have soared an average 38%. Moreover, energy equities are likely to continue outperforming, as crude oil prices remain sensitive to any incremental oil market tightness. The Energy Information Administration projects that crude oil will remain above the $50/barrel level for the rest of 2005 and 2006. With worldwide oil demand projected to grow at an annual pace of 2.1 million barrels per day in 2005 and 2006, representing a 2.5% annual average growth rate, demand remains strong.
Among the outstanding performers within the energy sector universe of funds is the $940 million Black Rock Global Resources Fund, which invests at least 80% of its assets in global energy and natural resources companies, associated businesses, and utilities. Managers Daniel Rice and Denis Walsh look for stocks with the potential for above-average long-term performance based upon supply/demand projections, among other factors. With 129 holdings as of March 31, the fund is dominated by energy minerals (56%) and industrial services (26.9%). Although the fund’s top 10 holdings comprise over 43% of assets, the fund doesn’t trade much; it boasts a mere 27% turnover ratio, vs. its peers’ average of 172%.
Another top performer, the $508 million U.S. Global Investors Global Resources Fund (PSPFX), invests in high-quality companies involved in mining, processing, and transportation of natural resources (see page 70). Its globally diversified portfolio includes oil, electric services, base metals, minerals, chemicals, precious metals, and more. The fund is managed using a value investment strategy and seeks investments in financially sound but underappreciated companies in out-of-favor and undervalued natural resource sectors. As of March 31, the fund poured 44.3% of its assets into Canadian securities and, more specifically, 23% within the oil and gas exploration and production sector, followed by 14% in service and equipment.–Angelina Dance