These Solid Funds Are Betting on an Unloved Sector
You might get just the right amount of energy exposure with these funds.
Although oil prices have declined since the spring, demand from emerging markets should provide a long-term tailwind for the energy sector. And now might be a good time for investors to get their foot in this door at an attractive entry point as Morningstar stock analysts have determined the energy stocks in their coverage universe to be almost 20% undervalued currently, on average.
Investing in individual energy names, or an energy-focused exchange-traded fund or sector fund, is the most straightforward way to obtain exposure to the energy sector. For some of our analyst favorites, check out our ETF and Fund Analyst Picks. But the flexibility of an active, diversified fund might appeal to investors who would rather avoid a concentrated bet on a single sector. The advantage here is that the diversified fund manager can either load up on the sector or avoid it altogether--a flexibility that neither ETFs nor actively managed energy sector funds have.
For some worthy actively managed fund options with an energy tilt, we turned to the Premium Fund Screener and sought no-load, noninstitutional domestic funds with more than a 15% exposure to the energy sector. (For context, the S&P 500 ETF (SPY) has about 12% in the energy sector.) We filtered for funds with analyst coverage that sport price tags less than the category average. We also required that managers have helmed the fund for at least five years. Additionally, we layered on a screen for offerings with a long-term focus featuring turnovers under 50%, to provide at least some assurance that a fund's most recent portfolio is indicative of its current positioning. When we eliminated but the distinct portfolios of each fund, the screener yielded 10 funds, three of which we've highlighted below. Premium members can replicate this screen by clicking here.
Esther Pak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.