Market Overview

25% Of U.S. Mutual Funds 'Holding Nose' To Buy Energy Stocks

25% Of U.S. Mutual Funds 'Holding Nose' To Buy Energy Stocks
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• About one in four actively managed mutual funds has increased exposure to energy stocks this year.

• So far, the strategy has not paid off and many of these funds have underperformed peers.

• Nearly $27 billion has been pulled from these funds this year.

According to Reuters, 25 percent of 265 actively managed large-cap U.S. mutual funds with at least $500 million in assets have been buying energy stocks in 2015. So far, the strategy has been a painful one, as the S&P 500 energy sector has declined by 25 percent so far this year.

BMO Large-Cap Value Fund

The BMO Large-Cap Value Fund is one of the funds that has been hit hard after increasing its exposure to energy stocks. “We are kind of holding our nose to buy them, but we see value there,” BMO asset manager Ernesto Ramos told Reuters.

Back in February, the BMO Large-Cap Fund increased its exposure to the energy sector from 10 percent to 13 percent by buying stocks such as ExxonMobil Corp (NYSE: XOM) and Valero Energy Corp (NYSE: VLO).

Ramos, who manages about $15 billion at BMO, says that the firm has been selling consumer staples and utilities.

Ridgeworth Large Cap Value Equity Fund

The $2 billion Ridgeworth Large Cap Value Equity Fund has been one of the biggest recent buyers of energy stocks, more than doubling its exposure to the sector from 6.7 percent in February to 14 percent by September.

The fund has taken large stakes in ConocoPhillips (NYSE: COP), EOG Resources Inc (NYSE: EOG), Hess Corp (NYSE: HES) and Noble Energy Inc (NYSE: NBL). Each of these names is down more than 19 percent in the past three months.

Waiting Game

According to Ramos, BMO’s bets on the energy sector require patience, but he feels that opportunistic investors “will eventually be rewarded.”

Lippor data indicates tha not all investors have this level of patience. Nearly $27 billion has been pulled from funds that have increased stakes in energy stocks this year.

Disclosure: the author holds no position in the stocks mentioned.

Posted-In: Long Ideas Mutual Funds Education Commodities Top Stories Markets Trading Ideas General Best of Benzinga


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