The biggest fund in the energy sector and a bellwether for its performance is the $15 billion Vanguard Energy Fund (VGENX). It is up 12.8% this year through March 23 and 29% over the past year.
The fund holds 118 stocks and has a low 27% annual turnover. Expenses are a very low 0.38%.Morningstar analysts make the fund the top pick in its sector, and give it the firm's highest rating of five stars. Standard & Poor's gives it a "strong buy" recommendation and the company a five-star rating, its highest. Vanguard Energy favors the industry's largest integrated oil companies, including: Exxon Mobil (XOM), at 7.6% of the fund; Occidental Petroleum (OXY), 5%; and Chevron (CVX), 4.4%. Morningstar fund analyst Rob Wherry said in a Feb. 29 research note that "this fund is run by experienced managers who like cheaply priced stocks with decent growth prospects. The category can be volatile, so they minimize risk by tilting the fund toward large-cap, integrated oil firms that aren't as susceptible to commodity price swings as are smaller players. The portfolio has 90% of assets in large caps compared with 63% for the category average." Exxon Mobil, one of the world's largest companies with a market value of $411 billion, is up 14% this year and 26% over the past 12 months, through March 23. S&P has a 12-month price target of $99 on its shares, a 20% premium to the current price. S&P oil industry analyst Michael Kay said in a research note on the firm that the company will continue to benefit from its many "big-pocket" oil properties it taps with offshore rigs, as wells as its liquid natural gas (LNG) oil shale projects and its joint ventures with state-owned companies. Morningstar analyst Allen Good said in a Feb. 12 research note that in addition to its huge inventory of developable properties, the company is well-managed and its "superior capital allocation and operational performance should drive high returns on capital."
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