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Energy mutual funds finished the year as the biggest loser after registering a 16.7% year-to-date loss. The other losers were Natural Resources, Equity Precious Metals and Miscellaneous Sector, which slumped 12.5%, 10% and 0.2%, respectively. For the energy sector, the slump was unavoidable given the nosedive that crude prices suffered in the second half of the year. Currently, oil is deeply entrenched into bearish territory and has fallen below the $60-a-barrel level following OPEC’s decision to hold production unchanged, the effects of booming shale supplies in North America and a stagnant European economy. Moreover, a stronger dollar has made the greenback-priced commodity more expensive for investors holding foreign currency. The cut in global crude demand growth by major energy consultative bodies has put the final nail in the coffin. The concerns have dealt severe blow to the energy sector, and as evident from the fact that energy mutual funds category was the biggest loser in 2014. Let’s look at the funds that were the biggest losers last year, and with unfavorable Zacks Mutual Fund Rank they continue to be funds that should be dropped from investors’ portfolios. The 2014 Crude Selloff The West Texas Intermediate (WTI) crude price lost momentum in June and has since then been showing weakness. This is primarily owing to plentiful North American shale supplies in the face of lackluster demand expectations, sluggish growth in China and the prevailing softness in the European economy. Strengthening of the U.S. dollar also impacted the demand for the greenback-priced crude as it is now expensive for importers to buy oil. Amid the soft oil pricing scenario, the international cartel of oil producers’ – Organization of the Petroleum Exporting Countries (OPEC) – stand against oil output cut on Thanksgiving Day added to the supply concern. We believe that the decision reflects the strategic move by Saudi Arabia − which holds the top spot in terms of total production among the 12 OPEC members − to get an advantage over U.S. shale producers. This is because shale oil, which has been witnessing large-scale production in the U.S over the last few years, is relatively expensive. Hence, in the environment of tumbling oil price, it will be difficult for U.S. shale producers to garner sufficient earnings to stay afloat in the industry. OPEC also cut its 2015 forecast consumption by 280,000 barrels per day from its previous expectation, walking in the same track as U.S. Energy Information Administration (EIA) which trimmed its demand outlook for next year by 240,000 barrels per day. Moreover, U.S investment bank Morgan Stanley has given a weak crude pricing projection as it does not expect prices to recover next year. All these acted as dampeners, which dragged down the oil price nearly 50% since mid June. WTI crude is now trading at $57.33 per barrel, a five-year low. In our view, crude prices in the next few months are likely to exhibit a sideways-to-bearish trend, mostly trading in the $55-$65 per barrel range. As North American supply remains strong and demand looks underwhelming, we are likely to experience further pressure in the price of a barrel of oil. 3 Worst Performing Energy Funds The following energy funds were the worst performers in 2014 based on year-to-date loss they suffered. These funds should be dropped from portfolio, as they carry unfavorable Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell) as we expect the funds to underperform its 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 the likely future success of the fund. These funds also have high expense ratios. Rydex Energy Services C (MUTF: RYVCX ) seeks growth of capital. The fund invests a majority of its assets in equities of small to mid-cap Energy Services Companies that are domestically traded. It also invests in derivatives. The fund may also buy American Depositary Receipts for exposure to non-Us energy companies. RYVCX currently holds a Zacks Mutual Fund Rank #4 (Sell) and has lost 29.4% year to date. It has lost 39.2% over the last six months. The fund carries an expense ratio of 2.37% as compared to category average of 1.53%. BlackRock Energy & Resources Investor B (MUTF: SSGPX ) invests a lion’s share of its assets in equities of global energy and natural resources companies. It also invests in companies belonging to utilities sector. The fund mostly focuses on small-cap firms. The non-diversified company invests without limit across the globe and usually in at least three countries. SSGPX currently holds a Zacks Mutual Fund Rank #4 (Sell) and has lost 26.2% year to date. It has lost 37.1% over the last six months. The fund carries an expense ratio of 2.1% as compared to category average of 1.53%. RS Global Natural Resources C (MUTF: RGNCX ) seeks growth of capital over the long term. The fund invests most of its assets in companies considered by the fund’s investment team to be primarily involved in natural resources industries. The fund invests in companies from a minimum of three countries. RGNCX currently holds a Zacks Mutual Fund Rank #5 (Strong Sell) and has lost 23.5% year to date. It has lost 36.5% over the last six months. The fund carries an expense ratio of 2.21% as compared to category average of 1.47%. Scalper1 News
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