Buckling Up to Ride the Oil Roller Coaster

Even investment experts shy away from energy futures. Some of them believe investors could profit handsomely by shorting near-term contracts that look expensive, and snatching up long-term contracts that look too cheap. But they generally view energy futures as too risky for both their clients and themselves. That might be especially true in the current scenario, which seems even more unstable than usual on account of rising tension surrounding Iraq.

So the experts tend to recommend open-end commodity funds -- rather than specific futures contracts -- to those who insist on heavy exposure to volatile energy prices.

The Real Asset Fund, launched six years ago by Oppenheimer, is the oldest and best-known of the bunch. Although it includes other commodities, such as precious metals and livestock, the Real Asset Fund is currently dominated by energy futures.

Fueled by soaring energy prices, the fund has rocketed 21% in what has so far been a down stock market year. But even Oppenheimer cautions against putting too many eggs in this tricky basket.

"We pretty much advocate that investors can benefit from a 5% exposure to commodities," says Oppenheimer spokesman Gregg Stitt. "This was never meant to be a full portfolio."

Jeffrey Saut, chief investment strategist at Raymond James, says that commodity funds are "probably the way to go" for retail investors seeking high exposure to volatile energy prices. But most investment experts, Saut included, see better ways to capitalize on the current energy environment.

Royal Flush

Low-key royalty trusts -- passed over for years by growth-hungry investors -- are getting a second look these days.

Energy experts now view this quiet group of companies as an attractive vehicle for investors looking to profit from high energy prices with little downside risk. The companies basically own mineral rights that generate cash from energy discoveries made by outside producers.