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3 Best-Performing Energy Mutual Funds of Q3

Energy companies in the U.S. had a particularly tough ride in the last three years with extreme price volatility riddling the space. At the beginning of 2017, WTI crude was trading at the lower end of the $50 range, Brent Crude was just short of the $60 mark and natural gas traded near $3.50. Experts had already written off the sector and the future seemed bleak.

However, it seems that following an extended period of relative weakness, energy stocks are finally on their way to recovery. With crude now back to more than $50 and natural gas revolving around the pivot of $3, the panic that swept across the market seems to have ebbed. The sector is now better off than it was in the early part of 2016.

The recovery in energy prices has been attributed primarily to a series of hurricanes which ravaged the energy belt of the United States toward the end of the third quarter, causing numerous refinery shutdowns.

Moreover, the U.S. economy expanded at a solid 3% seasonally adjusted annual rate in the third quarter, according to Commerce Department data, following 3.1% growth in the prior quarter. Such favorable economic conditions are usually backed by a steady rise in energy prices. This is why investing in energy mutual funds would be wise at this point.

OPEC’s Role in Boosting Energy Prices

The rapid decline of oil inventories in recent months has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. Moreover, energy bodies OPEC and IEA both recently raised global oil demand forecasts for this year. Also, supply from the 14-member OPEC cartel is set to remain constraint for at least the next six months, helping to tighten the market significantly. Adding to the positive momentum, OPEC and Russia claimed to be on the right track in clearing the global oil glut with half the job done.

With fundamentals pointing to a tighter market, oil ended the third quarter at $51.67 per barrel, up about 10.5% sequentially. A year ago, crude futures hovered around the $45 per barrel mark. (Read More)

In a meeting in May 2017, OPEC as well as non-OPEC oil producers unanimously decided to curtail output by 1.8 million barrel per day through March 2018. This has been instrumental in boosting oil prices in recent times. Following this initiative, OPEC has requested U.S.-based producers to also curb their productivity. As a matter of fact, shale drillers from North America alone have boosted overall productivity in United States by 10%.

Gulf Coast Hurricanes Cause Refinery Shutdowns

Hurricanes Harvey and Irma, which ravaged swathes of Texas and Florida, forced almost a third of the country’s refining capacity out of operation. Economists believe that the impact of the hurricanes is likely to be stronger on refineries and petrochemical production in the long run. The International Energy Agency stated that this would lead to an extreme supply shortage of refined products for two consecutive quarters. This would certainly boost prices even higher.

In its latest Oil Market Report released on Oct 12, the IEA stated that the Gulf Coast of the United States exports approximately 4 million barrels per day of refined products and about 800,000 barrels of crude oil in a single day. This makes the Gulf area an important trading center globally. So it goes without saying that a shortage in supply in the Gulf Coast would push up energy prices globally.

U.S. GDP Continues Improving

The U.S. economy expanded at a solid 3% seasonally adjusted annual rate in the third quarter of 2017, according to Commerce Department data. Such an expansion came on the heels of 3.1% growth in the second quarter. It also marks the first time of two consecutive quarters of 3% growth or more since mid-2014 for the economy.

The economy shook off the impact of hurricanes Harvey and Irma that was expected to impede growth in the July-September quarter. The hurricanes caused massive damage in Texas and Florida during August and September.

Production at factories, offices and transportation centers were interrupted. Precisely, the storms disrupted fuel production in Texas and agricultural production in Florida. The U.S. economy, in fact, lost 33,000 jobs last month, marking the first month of decline in employment in seven years. (Read More)

3 Best Performing Energy Mutual Funds

Here, we have highlighted three energy mutual funds sporting a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging third-quarter and yearly returns. Additionally, the minimum initial investment is within $5000.

Given a burgeoning U.S. economy and improving energy prices despite two tropical hurricanes, the future of the energy sector seems brighter than ever. We therefore recommend investing in energy mutual funds which now would certainly boost your finances.

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.

Saratoga Energy & Basic Materials I SEPIX seeks appreciation of capital in the long run. SEPIX invests the lion’s share of its assets in equity securities of both foreign as well as domestic companies of any capitalization from the energy and basic materials sector. The fund uses Standard & Poor's classification system to determine whether a company is from the energy or the basic materials sector.

SEPIX, managed by Saratoga Adv, registered third-quarter and one-year returns of 1% and 16.2%, respectively. The fund’s performance, as of the last filing, when compared with funds in its category was in the top 10% in a year’s time. This does not include front and deferred loads.

Vanguard Energy Investor VGENX seeks capital appreciation for the long run. VGENX invests a major portion of its assets in equity securities of companies from the energy sector. The fund normally invests in stocks of companies that are engaged in the production, marketing, transmission and research of energy.

VGENX, managed by Vanguard Group, registered third-quarter and one-year returns of 1.9% and 6.3%, respectively. The fund’s performance, as of the last filing, when compared with funds in its category was in the top 30% in a year. It does not include front and deferred loads.

Columbia Global Energy & Natural Resources Z (UMESX seeks capital growth for the long run. UMESX invests more than 80% of its assets in securities of domestic and foreign companies. The fund primarily focuses on acquiring securities of companies from the natural resources and energy industries. Moreover, UMESX invests more than half of its assets in petroleum and crude oil companies.

UMESX, managed by Columbia, witnessed returns of 2.1% and 15%, respectively in the third quarter and last year. The fund’s performance, as of the last filing, when compared with funds in its category was in the top 12% over a year. It does not include front and deferred loads.

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