Fidelity Select Energy Portfolio Q2 2024 Review
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Summary
- Fidelity Select Energy Portfolio is a sector-based, equity-focused strategy that seeks to outperform its benchmark through active management.
- The energy sector, as measured by the MSCI U.S. IMI Energy 25/50 Index, returned -2.27% in Q2, versus the 4.28% advance of the broadly based S&P 500 index.
- For the quarter, the fund had a return of -2.53%, slightly trailing the MSCI U.S. IMI Energy 25/50 Index and notably underperforming the broad-based S&P 500 index.
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Investment Approach
- Fidelity® Select Energy Portfolio is a sector-based, equity-focused strategy that seeks to outperform its benchmark through active management.
- We believe stocks can become mispriced relative to intrinsic value for a variety of reasons, including cyclically depressed earnings or overly positive or negative sentiment.
- Supported by in-depth fundamental research, we seek to uncover investment opportunities by analyzing the drivers of supply and demand for energy commodities, in combination with valuations and cash-generation potential for energy stocks.
- Our process is grounded in the belief that the ability to generate free cash flow over time is the best barometer of value, and that companies with quality businesses trading at attractive levels compared with future free-cash-flow generation tend to outperform.
- Sector strategies could be used by investors as alternatives to individual stocks for either tactical- or strategic-allocation purposes.
1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 07/14/1981.
2 This expense ratio is from the most recent prospectus and generally is based on amounts incurred during the most recent fiscal year, or estimated amounts for the current fiscal year in the case of a newly launched fund. It does not include any fee waivers or reimbursements, which would be reflected in the fund's net expense ratio.
Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. Performance shown is that of the fund's Retail Class shares (if multiclass). You may own another share class of the fund with a different expense structure and, thus, have different returns. To learn more or to obtain the most recent month-end or other share-class performance, visit Fidelity Funds | Mutual Funds from Fidelity Investments , Financial Professionals | Fidelity Institutional , or Fidelity NetBenefits | Employee Benefits . Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any.
Cumulative total returns are reported as of the period indicated.
For definitions and other important information, please see the Definitions and Important Information section of this Fund Review.
Fund Information
Manager(s): Maurice FitzMaurice
Trading Symbol: FSENX
Start Date: July 14, 1981
Size (in millions): $2,244.79
Morningstar Category: Fund Equity Energy
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. The energy industries can be significantly affected by fluctuations in energy prices and supply and demand of energy fuels, energy conservation, the success of exploration projects, and tax and other government regulations. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. The fund may have additional volatility because of its narrow concentration in a specific industry. Non-diversified funds that focus on a relatively small number of stocks tend to be more volatile than diversified funds and the market as a whole.
Market Review
The energy sector, as measured by the MSCI U.S. IMI Energy 25/50 Index, returned -2.27% in Q2, versus the 4.28% advance of the broadly based S&P 500® index. The latter shook off a rough April and rose steadily due to resilient corporate profits, a frenzy over generative artificial intelligence and the Federal Reserve's likely pivot to cutting interest rates later this year. The backdrop for the global economy and earnings growth was largely constructive, underpinning fairly low market volatility. The move toward global monetary easing inched forward, although persistent core inflation in the U.S. continued to keep the Fed on hold. Looking ahead, the pace and magnitude of global monetary easing remains uncertain, while near-term risk of a recession in the U.S. appears muted.
Against this backdrop, energy stocks lagged the broader market amid declining crude-oil prices, which often influence corporate profitability among energy companies. The price of West Texas Intermediate crude oil declined to $81.46 per barrel in Q2, from $83.17 bbl at the start of the quarter, and hit a low of $72.95 bbl on June 4. Meanwhile, Henry Hub natural gas prices rose about 33% in Q2 to $2.42 per Metric Million British Thermal Unit, from $1.54 at the start of the quarter. The price of this commodity remained historically low, which continued to be somewhat of a headwind to profit growth for natural gas-related firms.
Among the larger industries within the MSCI sector index, the oil & gas storage & transportation (+8%) group led the way. Here, Williams Companies ( WMB ) and Kinder Morgan ( KMI ) (+10% each) fared well, along with Targa Resources ( TRGP ) (+16%). The sector's largest industry, integrated oil & gas, was about flat this quarter, with Suncor Energy ( SU ) gaining 4%, whereas Cenovus Energy ( CVE ) returned -1%. Conversely, the oil & gas refining & marketing (-12%) and oil & gas exploration & production (-4%) categories lagged the broader sector index.
Performance Review
For the quarter, the fund had a return of -2.53%, slightly trailing the MSCI U.S. IMI Energy 25/50 Index and notably underperforming the broad-based S&P 500 index.
An underweight in the outperforming oil & gas storage & transportation industry notably detracted from performance versus the MSCI sector index in Q2. An overweight in the lagging oil & gas equipment & services industry (-6%) also weighed on the fund's relative result.
Among individual stocks, avoiding benchmark component Williams Companies (+10%) hurt most. We avoided the stock because we felt other companies in the oil & gas storage & transportation industry, such as Cheniere Energy (+9%) and Energy Transfer (+5%), had superior growth prospects and fundamentals. Elsewhere, an overweight in SLB (-13%) also meaningfully detracted this quarter. In mid-April, the provider of oilfield products and services reported flat earnings growth for the first quarter, due partly to weaker profit margins in its digital & integration and well construction units.
Conversely, stock picks in the oil & gas drilling category lifted the fund's relative result in Q2. From a stock-specific standpoint, an underweight stake in oil & gas exploration & production firm ConocoPhillips (-10%), a sector index component, contributed the most. The fund also benefited from its non-index stake in Texas-based independent power producer Vistra ( VST ) (+24%). On May 8, the company reported better-than-expected first-quarter financial results. Management said higher-than-expected synergies from its recent acquisition of Energy Harbor lifted Q1 results, giving the company confidence to raise financial guidance for 2024.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.