Petroleum Business: Exploring Mutual Fund Investments

There are several mutual funds that invest in the petroleum business, either directly or indirectly. Mutual funds that invest in the petroleum business are often focused on the energy sector, which can include companies involved in drilling, extraction, oilfield services, oil refining, and transportation. Some examples of mutual funds that invest in the petroleum business include the Vanguard Energy Fund Investor Shares (VGENX), the Fidelity Select Energy Portfolio (FSENX), and the BlackRock Natural Resources Trust Fund (MDGRX). These funds typically invest a significant portion of their portfolios in companies related to energy, such as oil and gas exploration and production. While investing in the oil industry can be risky, it can also provide investors with the opportunity to participate in a growth-oriented equity market that boasts exponential profit margins over the long term. Additionally, some mutual funds choose to exclude fossil fuel companies from their investment strategies, focusing instead on clean energy and sustainability.

Oil and gas exploration and production

There are several mutual funds that focus on investing in companies related to oil and gas exploration and production. One example is the iShares U.S. Oil & Gas Exploration & Production ETF, which seeks to track the performance of an index composed of U.S. equities in this sector. This ETF provides exposure to U.S. companies engaged in the exploration, production, and distribution of oil and gas, offering targeted access to domestic oil and gas stocks.

Another option is the Vanguard Energy Fund, which was established in 1984. This fund aims to provide long-term capital appreciation by investing a minimum of 80% of its assets in the common stock of companies primarily engaged in activities related to the energy industry. Integrated Oil & Gas, along with Oil & Gas Exploration & Production, make up a significant portion of the fund's holdings.

Additionally, the Fidelity Select Energy Portfolio, supported by Fidelity Investments, is another mutual fund investing in oil and gas exploration and production. This fund also invests a minimum of 80% of its assets in securities of companies active in the energy field, including oil, gas, and other energy sources.

These mutual funds provide investors with the opportunity to diversify their portfolios, speculate on the demand for oil and fossil fuels, and hedge against inflation. However, it is important to note that investing in the oil industry carries a significant amount of risk.

Drilling and extraction

The drilling process begins with the identification of potential sites for oil and gas drilling through exploration activities. Early explorers relied on natural oil seeps, but advancements in technology have made the process more efficient, with geological surveys now conducted using various methods such as testing subsoil for onshore exploration and seismic imaging for offshore exploration. Once a company identifies the location of oil or gas, plans for drilling can begin. Drilling depths, rock hardness, weather conditions, and the distance of the site can all impact the duration of the drilling process.

E&P companies typically do not own their own drilling equipment or employ a drilling rig staff. Instead, they contract specialised drilling firms to perform the drilling work, with the contract drilling companies charging for their services based on the amount of time worked.

The oil and gas industry is crucial to the global economy, with oil being a vital energy product in a wide range of industries. As a result, the upstream segment, including drilling and extraction activities, plays a significant role in meeting the global demand for oil and gas.

Oilfield services

• Vanguard Energy Fund Investor Shares (VGENX): Established in 1984, Vanguard Energy Fund seeks long-term capital appreciation by investing at least 80% of its assets in companies engaged in the energy industry. As of June 30, 2021, the fund managed $4.8 billion in investor assets, with a 10-year annualized return of -2.69%. It has a low expense ratio of 0.37%, and investors are not charged sales loads. However, a minimum initial investment of $3,000 is required.
• Fidelity Select Energy Portfolio (FSENX): Managed by Fidelity Investments, FSENX has been available to investors since 1981. The fund invests a minimum of 80% of its assets in securities of companies engaged in various energy fields, including oil, gas, and new energy sources. As of June 30, 2021, FSENX managed $1.3 billion in assets, with a 10-year annualized return of -2.08%. Shares are available without sales charges, and there is no minimum investment requirement. Top holdings include well-known energy companies such as Chevron and Exxon Mobil.
• BlackRock Natural Resources Trust Fund (MDGRX): Established in 1994, MDGRX seeks to provide long-term capital growth by investing in companies with substantial natural resource assets, including energy, oil, and gas. As of June 30, 2021, the fund has generated a 10-year annualized return of 0.82%, with an expense ratio of 1.26%. A sales load of 5.25% is charged on new share purchases, and a minimum investment of $1,000 is required. Top holdings include Chevron Corp and TotalEnergies.
• Integrity Mid-North American Resources Fund (ICPAX): Offered through the Integrity family of mutual funds, ICPAX seeks to provide long-term capital appreciation by investing in domestic and foreign companies involved in the development of resources in the Williston Basin area. The fund may also invest in equity securities of companies benefiting from Mid-North American resources. As of July 2021, ICPAX had generated a 10-year annualized return of -2.23% with an expense ratio of 1.50%. A 5% upfront sales charge is applied to new investments, and a minimum investment of $1,000 is required. Top holdings include Cabot Oil and Gas, and Phillips 66.

In addition to these mutual funds, investors can also consider Exchange-Traded Funds (ETFs) that specifically focus on oil equipment and services. Examples of such ETFs include the iShares U.S. Oil Equipment & Services ETF and the VanEck Oil Services ETF. These ETFs provide exposure to companies that provide equipment and services in the oil industry.

Oil refining

One such mutual fund is the Franklin Natural Resources Fund (FRNRX). This fund seeks capital appreciation by investing in companies that own, produce, refine, process, transport, and market natural resources, as well as those providing related services. As of April 30, 2023, some of its top holdings included ConocoPhillips (4.4%), Exxon Mobil Corp (4.3%), and Chevron Corp (4%). FRNRX has generated strong returns, with a 3-year annualized return of 28.7% and a 5-year annualized return of 4.2% as of September 14, 2023. The fund has a relatively low expense ratio of 0.96%, which is lower than the category average of 1.11%.

Another mutual fund with a focus on oil refining is the Fidelity Select Energy Portfolio (FSENX). Managed by Fidelity Investments, this fund invests a minimum of 80% of its assets in securities of companies engaged in various energy fields, including oil, gas, electricity, coal, and new energy sources. As of June 30, 2021, FSENX had $1.3 billion in assets under management. Its top holdings include well-known energy companies such as Chevron, Exxon Mobil, ConocoPhillips, and Royal Dutch. While FSENX has a slightly higher expense ratio of 0.85%, it does not require a minimum initial investment, making it more accessible to individual investors.

The Vanguard Energy Fund Investor Shares (VGENX) is another option for investors interested in the oil refining sector. Established in 1984, this fund also invests a minimum of 80% of its assets in companies primarily engaged in the energy industry. As of June 30, 2021, VGENX managed $4.8 billion in investor assets. Integrated Oil & Gas, along with Oil & Gas Exploration & Production, account for 43.4% of the fund's holdings. While VGENX has a lower expense ratio of 0.37%, investors should note that a minimum initial investment of $3,000 is required.

In addition to these funds, there are other energy-focused mutual funds offered by companies like BlackRock and Integrity that may also have investments in oil refining companies as part of their broader energy sector portfolios. These funds provide investors with the opportunity to gain exposure to the oil refining industry while also diversifying their investments across other energy-related companies.

Transportation

In India, for example, the IDFC Transportation & Logistics Fund (IDFCTL) and ICICI Prudential Transportation and Logistics Fund (ICICITL) were launched to capitalise on the country's economic growth and the resulting demand for transportation and logistics services. These funds invest primarily in Indian companies within the transportation and logistics sector, with a small portion allocated to overseas-listed companies in the same areas.

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