If there is one sector that has its fate linked with the government – it is the energy sector. This sector has been waiting for the government to pass on the crude oil prices as well as the clearance of the nuclear deal, which would open up immense opportunities for the existing players of the sector.
But more than anything else, the energy sector has been sitting in anticipation of a spate of reforms, which would have been able to quench the country's thirst for more and more energy. However, owing to the policy-makers' reluctance, those reforms have never left the meeting rooms to see the light of the day.
Despite all these odds, the energy sector has performed fairly well mainly because the sector has some of the most efficient Public sector Units (PSUs). These PSUs are currently tied down by red tapeism and private players, but given a fair chance, they would be able to grow much faster and attain critical mass.
That said, there haven't been many mutual funds dedicated to the energy sector. At present, the category of energy funds is made up of only the following three funds:
RELIANCE DIVERSIFIED POWER
The fund was launched in 2004 to take advantage of the proposed power sector reforms. But even though the reforms haven't come, the fund has managed to perform exceedingly well. Since its launch, the fund has generated average returns of 50 per cent. Over time, the fund has reduced its concentration in the top five holdings, with other ancillary sectors getting more weightage.
Stocks like BHEL (5 per cent), ABB (6 per cent), Crompton Greaves (7 per cent), Siemens (7 per cent) and Jindal Steel and Power (7 per cent) have been the fund's prime holdings. To reduce the downside risk, the fund had exchanged its mid-cap allocation for large-cap stocks when the markets turned for the worst. Currently, the fund has captured the investors' fancy and has become the largest fund of the country in July with nearly Rs 5,000 crore of Asset Under Management (AUM).
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UTI ENERGY
The oldest fund in this category, UTI Energy was launched way back in 1999 to capitalise on the oil industry reforms. The fund was formerly known as UTI Petro, but with limited reforms in that industry, the fund was missing out on opportunities because of its narrow mandate. Hence in 2007, this fund was re-launched with a broader theme to capture opportunities in the energy sector.
Currently, the fund has got a mixed portfolio of energy companies like Reliance Industries, National Thermal Power Corporation, Larsen and Toubro, Bharat Heavy Electricals, Tata Power and ONGC. It is to be seen whether the re-energised UTI Energy would be able to shake off its earlier flaws of being too erratic in its performance.
SUNDARAM BNP PARIBAS ENERGY OPPORTUNITIES
This fund was launched when the markets were at their peak, and as a result, when the markets crashed, the fund got thrown at the deep end even before it had time to settle down. Both the fund and its benchmark, BSE Oil & Gas index have suffered the same fate, losing 29 per cent since January 2008. And with the turbulent market conditions, the fund has opted for safer bets and invested 20 per cent of its portfolio in debt and money market. As far as its core holdings go, the fund is loaded with stocks of the oil and gas industry like ONGC, Crain India and Gail India.