Four Funds for Natural-Resource Investing

It’s hard to argue with this strategy: the fund has a 10-year after-tax return averaging 16.25 percent.

Although it is a Class Z fund, it has wide brokerage availability, and there is no minimum for initial and subsequent investments. This makes it an ideal fund for employees who participate in a SIMPLE or 401(k) through a small employer.

Finally, there are no redemption fees should a client or advisor need to liquidate short-term.

While I wouldn’t necessarily use this fund for older clients and/or those looking for current income, it is a nice portfolio addition for those who want some natural resources exposure who can handle more risk.

Fidelity Select Materials (FSDPX): Like PNRZX, Fidelity Select Materials has a relatively low net-expense ratio of less than 1 percent and is a no-load fund. However, it does have a 104 percent turnover, which is not my ideal choice for client funds.

In addition, management can invest up to 25 percent of its assets in one stock, which could be a concern.

Although currently its largest holding is DOW (at 8.08 percent), almost one-half of its assets are in its top 10 holdings.

On the plus side, it has a stellar 10-year track history and even its short-term results outdo both its index and the S&P 500.

I do have some clients currently invested in this fund. You’ll pay a redemption fee to Fidelity (0.75 percent) but only if you have to sell in the first 30 days, which is quite reasonable.

J. Victor Conrad, CFP, ChFC, AIF, CPA, Pinnacle Financial Strategies, Wexford, Pa.

I use PIMCO Commodity Real Return Strategy (PCRAX) to gain natural resources/commodity exposure for clients.

Since I am not about to try to determine which individual commodities will perform well during any particular period of time, I can gain access to a broad “basket” of commodities by using this fund, which also provides some income as the manager actively manages the cash not used to purchase the index derivatives (Dow Jones UBS Commodity Index).

I also like the fact that this index has a governor on it – and no more than a third of the index used will be in energy.

I will not buy and hold this fund for extended periods of time. For example, I sold it out of client portfolios back in late 2007 when crude oil reached $100/barrel, locking in gains for clients and avoiding the drop in crude oil prices in the second half of 2008.

Recently I purchased this fund again in client accounts in late May 2010 when crude oil dipped below $70/barrel, and the fund has returned over 10 percent since then. I tend to use crude oil as the primary data point for buying and selling since crude oil tends to be the largest single sub-index weighting.