TheStreet.com Ratings

Return to Article

Cold Snap Boosts Energy Funds

Kevin Baker

As the temperature drops across the country, energy policy is heating up in Washington, D.C. The cold weather has spurred demand for the petroleum-related products that heat our homes.

And on Capitol Hill, the Democratic-controlled House of Representatives passed a sweeping bill to take back the tax breaks awarded to oil companies and to force the renegotiation for oil leases in the Gulf of Mexico. Also, the president gave his State of the Union speech plugging alternative energy sources.

Money to fund President Bush's alternative energy initiative would come from the renegotiated leases and the savings from the $7.6 billion tax break being rescinded.

The large oil and gas companies still had a good week, thanks to higher energy demand and uncertainty as to whether the legislation will pass in the Senate. At the same time, alternative-energy stocks shone, thanks to the president's call for a dramatic increase in renewable fuels over the next 10 years.

With a total return of 5.16% for the five trading days ended Jan. 25, the top performer this week was the (FSNGX Quote)Fidelity Select Natural Gas Portfolio. After struggling earlier in the month, the fund is now at break-even on a year-to-date basis.

It has 78.8% of assets invested in oil and gas stocks, with 13.2% in oil and gas services, 1.5% in electric, 1.3% in coal, 1.3% in iron/steel and 0.81% in construction and mining machinery.

The fund's largest holdings are Range Resources (RRC Quote) at 8.8% of assets, Plains Exploration (PXP Quote) at 8.3%, and Valero Energy (VLO Quote) at 7.3%.

Several winning positions contributed to the Fidelity Select Natural Gas fund's remarkable one-week performance. The biggest gainer in its portfolio was Evergreen Energy (EEE Quote), which skyrocketed 18.4%.

This company may greatly benefit from any push toward the use of "clean-coal" technology. It has a process that extracts moisture and mercury to create coal that burns more efficiently while emitting fewer greenhouse gases; this could be in great demand if "clean coal" is mandated by law. Unfortunately, Evergreen Energy accounts for only 0.686% of the fund's assets.

Range Resources, the Fidelity Select Natural Gas Portfolio's largest position, jumped 9.06% on the announcement that its proved reserves of natural gas increased by 25%.

Representing 2.6% of fund assets, another large holding that had a good week is Talisman Energy (TLM Quote), up 9.27%. The stock rose on news that noncore reserve assets the company is divesting may be worth $850 million, thus increasing the potential size of stock buybacks.

Second on the list of top-performing funds is the (FSESX Quote)Fidelity Select Energy Service Portfolio, with 64.8% of assets oil and gas services, 30.2% in oil and gas and 3.5% in engineering and construction.

Its largest holdings are National Oilwell Varco(NOV Quote), Noble Corp.(NE Quote) and GlobalSantaFe (GSF Quote), at 8.4%, 6.5% and 6.2% of assets, respectively.

The holdings that rallied the most during the week are Vestas Wind Systems (WDRY Quote), which rose 8.86%; Hydri(HYDL Quote), up 8.40%; and Schlumberger (SLB Quote), which gained 8.15%.

The only two energy funds to fall between Jan. 18 and Jan. 25 were both closed-end funds with performance histories too short to generate ratings. The (IRR Quote)ING Risk Managed Natural Resources Fund fell 2.23%, and the (BCF Quote)Blackrock Real Asset Equity Trust slipped 0.77%.

While the holdings of ING Risk Managed Natural Resources aren't currently available, the fund is selling at a 3.46% discount to its net asset value, according to information on the company's Web site.

Blackrock Real Asset Equity Trust was hampered by the poor performances of Real Resources (RRSRF Quote), International Paper (IP Quote), Deere & Co (DE Quote) and Massey Energy (MEE Quote), which were chopped down by 12.22%, 4.32%, 2.99% and 2.21%, respectively.

The bullishness this week in energy funds serves as an example of how the prospect of increased focus on efficiency, energy conservation, cleaner electricity production and alternative energy sources can create economic growth by unleashing the opportunities for new companies to apply the latest high-tech energy solutions.