A Six-Pack of Commodity-Based Funds

Posted Mar 16th 2011 11:00AM by Steven Halpern
Filed under: International Markets, Newsletters, Mutual Funds, Commodities, Oil

Fidelity logo "The last time I focused on commodities was back in 2009 when the recovery was piecing itself together. Now, most of the pieces of the recovery are in place, with the notable misfits being job creation and home values," notes Jim Lowell, a leading specialist on Fidelity funds.

The editor of Fidelity Investor explains, "Today, commodities are in increasingly short supply as increasing global consumer demand, geopolitical disruptions, and even Mother Nature have taken their toll on the supply of goods and services.

"I view commodities as a real world currency whose value typically increases in times of economic expansion and decreases in times of economic contraction.

"Here's a look at six funds -- including energy, energy services, materials, natural gas and natural resources -- that earn my buy recommendation.

"Commodities are lighting up the screen and blinking an early warning on inflation.

"Commodities and the companies that profit from sowing, nurturing, harvesting, processing and shipping them, have been on a better run than the broader market averages, leading many to suggest they're overpriced and overdue for a pullback.

Fidelity Canada (FICDX)

"Manager Doug Lober invests in Canadian companies or those tied to Canada economically.

"This fund is a natural resources play which trends up in recovery cycles and even during boom times as demand for natural resources that feed the economic growth engines increases.

"The top three sectors are materials (28.4%), energy (23.1%), and financials (20.5%). If I could buy only one commodity-related fund, this would be my current preference.

Fidelity Energy Service (FSESX)

"As prices rise, more and more drilling ensues ... and I like owning the store that sells the prospectors their picks and shovels, making a profit no matter if they find black gold in 'them thar hills' or not.

"Manager Jonathan Kasen invests in companies that provide products and services for engineering and construction of on- and offshore drilling, reservoir analysis, exploration, technology, and production and well services.

"Foreign investments make up 19.4% of the holdings. Top holdings are Schlumberger, Halliburton, Baker Hughes, and National Oilwell varco.

Fidelity Global Commodity Stock (FFGCX)

"I am upgrading my recommendation on this fund, based on the long-term trajectory of increased demand.

"Manager Joe Wickwire owns companies that seed, sow, nurture, harvest, process and transport a broad based basket of commodities.

"The top five country representations are the US (30.5%), the UK (17.7%), Canada (16.2%), Brazil (4.8%), and Japan (3.8%).

"The top three sectors are materials (57.3%), energy (33.1%), and consumer staples (4.2%). The top ten holdings are BHP Billiton, Exxon Mobil, Potash Corp of Saskatchewan, Royal Dutch Shell, Rio Tinto, Monsanto, Syngenta, Chevron, vale Sa, and Archer Daniels Midland.

Fidelity Materials (FSDPX)

"Is it as simple as saying that you can't build a recovery without materials? Yes, it is.

"Manager Tobias Welo invests in companies that manufacture chemicals, construction products, glass, paper, forest products, and packaging products, as well as companies involved with metals, minerals, mining, and steel.

"Foreign investments make up 14.5% of the holdings. The top ten holdings are Dow Chemical, Freeport McMoran Copper & Gold, Dupont de Nemours, Monsanto, Praxair, Air Products & Chemicals, Newmont Mining, Mosaic, Celanese, and United States Steel.

Fidelity Natural Gas (FSNGX)

"You would think that with Snowmaggedon, Middle East turmoil, and recovering economies that natural gas would have spiked. It hasn't.

"The chief reason being, in my view, that the recovery has only recovered to the point where fears of a double dip have subsided, the next leg will be the growth spurt that could see demand increase for natural gas.

"There is the issue of transport that lends pricing pressure when demand rises. But supply is not an issue, making this commodity among the most sensitive recovery plays of all. So, I'm still early on this call.

"Manager Ryan Oldham invests in companies involved with the production, transmission, and distribution of natural gas, as well as those that provide products and services to natural gas refiners, producers, distributors, cogeneration facilities, and converters.

"Foreign investments make up 19.4% of the holdings. The top ten holdings are Apache, Anadardo Petroleum, Devon Energy, Sempra Energy, Duke Energy, Williams Companies, Dominion Resources, Ensco, Noble Energy, and EOG Resources.

Fidelity Natural Resources (FNARX)

"Like Fidelity Canada above, this fund makes sense in most every recovery scenario.

"The heavy energy weighting means that if I wanted to ignore my own warning, I'd likely be better served in this fund as a more diversified way to play the energy theme.

"Manager John Down invests in companies that own or develop natural resources or those that provide products and services to such companies.

"Foreign investments make up 21.5% of the holdings. The top three sectors are energy (76.6%), materials (19.4%), and industrials (3.3%).

"The top ten holdings are Exxon Mobil, Occidental Petroleum, Schlumberger, Marathon Oil, Halliburton, Freeport McMoran Copper & Gold, National Oilwell varco, Massey Energy, Whiting Petroleum, and Apache."

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