Energy Funds Continue Winning Streak

Energy and natural resources continue outperformance streak as growth flounders

Sunniva Kolostyak 9 June, 2022 | 8:45AM
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Little has changed in the fund universe over the past month. Energy and natural resource categories remain on top while growth and US equities are still dropping in value.

Seeing these categories topping the table again for May is not a surprise to anyone keeping an eye on the news cycle – and neither is the lack of a rotation back in growth’s favour. Most markets globally are currently trading at strong discounts, and, as seen in our recent analysis, energy and utilities are the only two categories where there are currently more overvalued companies than undervalued.

The fund that has been featured in the top 10 list every month this year is BlackRock World Energy. It's the only one with double-digit growth in May, returning 13.07%. Moreover, if we look at its entire year to date, it is clear of any competition. The value of its holdings more than doubled in 2022; returns are up 61.04%.

The fund’s increased returns are of course due to new oil price heights, after a slightly more stable April. The price jump also pushed up the value of the top ETFs. One reason is that the EU’s leaders recently agreed to cut Russian crude oil imports by as much as 90% by the end of the year, leading to concerns over future supply.

Completing the top three this month is JP Morgan’s natural resources fund range, which has also become a 2022 stalwart. Both of its strategies are up around 7% this month and 36% in 2022.

According to Morningstar’s analysts Dave Meats and Allen Good, the oil supply/demand picture looks extremely tight in the medium term. It is likely Russian volumes will decline further as they become starved of capital.

Meanwhile, the possibility of a deal with Iran has become increasingly remote, leaving room to accommodate growing US supply for longer.

“But in the longer run, a contrarian story is still emerging. The US rig level has now risen to the point where oversupply is back on the cards (circa 2024), even without an Iran recovery," they say.

Beyond the energy and natural resources funds, the top 10 list is slightly more mixed. Although there’s one more energy fund features, we also see UK-focused funds as well as vehicles investing in Europe and globally.

Just shy of the top 10, we have Spanish equity fund Magallanes VI UCITS Iberian Equity and Italian equity fund Fidelity Italy.

That said, Robeco’s two US large-cap funds are hovering around the 40th place (of about 800 funds) with returns just shy of 3% this month. The funds do have a value focus, which explains why they have managed to avoid losses this year.

As mentioned, US large-cap growth funds were the overall worst performers this month. Morgan Stanley was the worst hit, with five of its strategies appearing in our bottom funds list. US Growth fund lost 22.54%, while US Advantage lost 20.79%. Both have so far this year lost almost 50%.

The US market has, however, had a slight rebound from previous lows this year – but not enough to bring most of its stocks out of undervalued territory.

Other than Morgan Stanley, T. Rowe Price’s two global tech funds have also struggled, and two Baillie Gifford global growth funds have been hit hard as well.

Notably, BlackRock World Gold is also featured. That fund had the seventh worst return in our database, and is off 9.63% over the past month on the declining price of gold.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Sunniva Kolostyak  is data journalist for Morningstar.co.uk