The Big Screen: Natural Resources Funds That Make the Grade

Click here to see Part 1 of today's Big Screen on natural resources funds.

If you're shopping for a natural resources fund, the Big Screen has dutifully done some snooping for you.

We sifted the category, looking for funds that beat their average peer over the past one- and three-year periods. Then we tossed out any funds with annual expenses higher than the category's already steep 1.77% average or an investment minimum above $10,000. Here are the 10 funds that made the cut, ranked by their three-year annualized returns, according to Morningstar.

Leading Natural Resources Funds
Fund	3-Year Annualized	1-Year Return
(FSNGX)Fidelity Select Natural Gas	23.0%	49.2%
(ICENX)Icon Energy	21.2	62.1
(FSTEX)INVESCO Energy	20.1	43.9
(UMESX)Excelsior Energy & Natural Resources	16.2	30.4
(FSESX)Fidelity Select Energy Services	14.7	30.9
(MAGRX)Merrill Lynch Natural Resources A	13.8	38.3
(SLTRX)Strong Energy	11.7	42.5
(FRNRX)Franklin Natural Resources	11.0	31.5
(VGENX)Vanguard Energy	10.1	36.3
(PRNEX)T. Rowe Price New Era	8.7	29.0
Avg. Natural Resources fund	7.5	27.8
S&P 500	5.2	-12.4
Source: Morningstar. Annualized performance figures through Mar. 13.

As we said in our primer on the natural resources or energy-fund category, rising demand is raising the prices of natural gas and natural-gas company stocks. That's reflected in this Big Screen, where (FSNGX)Fidelity's Select Natural Gas fund and its (FSESX)Select Energy Services fund, which both have ample exposure to the natural gas industry, made the cut.

Like most Fido Select funds, managers haven't stuck around for long, but the firm's deep analyst bench has helped the funds put up solid returns.

The Select Natural Gas fund, run by Christian Zann since August 1999, is riding high on the subsector's high returns. It tops at least 90% of its peers over the past one-, three- and five-year periods, according to Morningstar. It has also fallen less than its average peer in down months over the past three years.

The Select Energy Services fund has been a bit more volatile, but its slightly broader scope -- including oil companies -- might make sense for more investors. Nicholas Tiller has only called the shots for a little over a year, but the fund beat at least 70% of its peers over the last one-, three-, five- and 10-year periods.

In the big picture, however, it might make sense to focus on funds that tend to spread their money more broadly around the sector, because natural-gas prices and stocks won't always be riding high.

If you work with a broker, you might consider the broker-sold (MAGRX)Merrill Lynch Natural Resources fund, where Bob Shearer has been at the helm since the end of 1997. He's currently focusing on natural-gas stocks such as EOG Resources, a natural-gas shop Enron spinoff, but he has the leeway to go anywhere in the sector, including companies in the chemical, paper, lumber and precious metal businesses.

He has beaten at least 80% of the fund's peers over the last one- and three-year periods, according to Morningstar.

Another solid option is the no-load (VGENX)Vanguard Energy fund, which boasts the category's lowest expense ratio (0.47%) and manager Ernst von Metzsch of Wellington Management, who has run the fund since 1984. He follows a risk-averse strategy, spreading money around the sector and trading less than his average peer. That approach has helped him beat his average peer over the past one-, three-, five- and 10-year periods. If you'd like more detail on his style, check out our 10 Questions interview with the veteran stock picker.

Another cheap, risk-averse fund you might check out is the no-load (PRNEX)T. Rowe Price New Era fund, where Charles Ober has been in charge since March 1997. The fund's expense ratio is just 0.74% ,and he, too, likes to scatter the fund's money in different industries to reduce risk. The fund beat its average peer over the last one-, three-, five- and 10-year periods.

If you're wondering which stocks are propelling these funds, don't worry: We've looked into the matter. We tossed our 10 leading funds' portfolios into a pot and sifted out a cumulative top-10 holdings. You'll find stocks like EOG Resources and Devon Energy(DVN) that we discussed in our primer, but also household names such as top-holding ExxonMobil(XOM) and Chevron(CHV).

You might not have thought these stocks intriguing a year ago, but they're looking a lot more relevant now that the beloved tech sector has at least temporarily buckled.

Under the Hood The stocks with the biggest weighting in the combined portfolios of the 10 above funds.
Stock	Weighting in Top-Ten Funds	Number of Top- Ten Funds Owning the Stock
ExxonMobil(XOM)	2.7%	8
Anadarko Petro(APC)	2.6	9
Nabors Industrial(NBR)	2.3	7
Devon Energy(DVN)	1.9	7
USX-Marathon Group(MRO)	1.8	5
Weatherford International(WFT)	1.8	5
EOG Resources(EOG)	1.7	7
Coastal(CGP)	1.6	4
Noble Drilling(NE)	1.6	5
Chevron(CHV)	1.6	7
Source: Morningstar. Holdings as of funds' most recent portfolio reports.

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