Fill Up on These Diversified Funds to Gain Energy Exposure
Nonsector funds can help boost a beaten-down asset class' share of your portfolio.
Nonsector funds can help boost a beaten-down asset class' share of your portfolio.
As anyone who's been to the gas pump lately can attest, it's getting mighty pricey to fill up your vehicle these days. Nationally, average gas prices are approaching $4 a gallon, and the summer driving season isn't even here yet.
But while the price of oil and gasoline continues to rise, bargains remain in energy stocks, say Morningstar analysts. Overall, they believe the sector remains undervalued (after clicking link, click on the Sector tab on the left-hand navigation bar, then select Energy) following a 2011 in which the average energy-equity fund lost 7.5%, more than nine points worse than the S&P 500's performance for the year. Ongoing concerns about the global economic recovery, upheaval in the Mideast, and the natural disasters in Japan weighed heavily on the sector. So far in 2012, energy-stock funds have rebounded but continue to lag the S&P 500 considerably. Their 4.28% return for the first quarter would be appealing in most years, but it placed energy 20th among 21 domestic-stock fund categories, ahead of only utilities.
If you're looking to up your portfolio's exposure to energy, one obvious way is through energy-sector funds such as Vanguard Energy (VGENX) and BlackRock Energy & Resources or exchange-traded funds such as Vanguard Energy ETF (VDE). But it's also possible to add energy exposure through diversified funds that have an overweighting in the sector.
We revved up Morningstar's Premium Fund Screener tool to identify nonsector domestic-stock funds in the top quartile of energy weightings for the category, meaning their portfolios contain at least 13.3% of the sector. We stuck with no-load funds with Morningstar Analyst Ratings of Gold or Silver. Premium users can see the full screen here. Below are some of the funds we found.
Dreyfus Appreciation (DGAGX) (
)With 22% of assets in energy stocks such as ExxonMobil (XOM) and Chevron (CVX), this fund doubles the average energy-sector weighting of its large-blend peers. Among its defining characteristics is its extremely low turnover ratio of just 2.6% of assets per year, which is typical of this fund's buy-and-hold approach. The fund's managers keep a relatively concentrated portfolio of around 50 stocks, with overweightings in consumer defensive issues (29% of holdings) along with energy and underweightings in financials and industrials. The low-risk fund outperformed the market by 4.6 percentage points in 2008, when stocks dropped, but lagged by 5.5 points the following year, when stocks rebounded. Its one- and five-year returns are in the top decile for its category. Fees are a not-unreasonable 0.97%.
Artisan Value (ARTLX) (
)Run by the same team behind Artisan Small Cap Value and Artisan Mid Cap Value (ARTQX), this large-blend fund slightly has an overweighting in energy at 13.7% of holdings, with much larger overweightings in technology (at 33% of its portfolio, including 7% in Apple (AAPL)) and financials (27%). Top energy holdings include
Apache (APA) and Cimarex Energy . The fund's managers look for companies with strong balance sheets. This approach served it well during the market's volatile 2011, in which the fund gained 5.5%, beating its peer group by more than six points. Fees are a bit steep at 1.09% of assets.
Neuberger Berman Genesis (NBGNX) (
)This fund recently moved from small- to mid-cap territory. Its 16.5% energy weighting is nearly double that of other mid-cap growth funds, while it has an underweighting in tech stocks. Top energy holdings include Oceaneering International (OII), Concho Resources , and Cabot Oil & Gas (COG). The fund's experienced management team, led by Judy Vale and Bob D'Alelio, largely ignores benchmarks and seeks out stocks that are reasonably priced, with strong balance sheets and competitive advantages, and typically with market caps below $1.5 billion. The fund's stellar 10- and 15-year performance record puts it in the top 3% of mid-cap growth funds for both time periods (and among the top-performing small-blend funds, as well). Annual turnover is a low 12%. At 1.05%, fees are below-average for the category. This fund may be purchased through a financial advisor or directly from Neuberger Berman.
Portfolio data as of Dec. 31 for Artisan Value and Neuberger Berman Genesis and as of Jan. 31 for Dreyfus Appreciation.
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