Energy Space Still Has Value

"That provides a healthy backdrop to stocks when the underlying commodity price is going up," says Dowd.

Among the stocks the fund currently holds, Dowd especially likes Schlumberger(SLB Quote), the Houston-based technology provider to the oil industry, because it has a good management team. He says the company has developed a suite of tools that differentiates it from its peers and shows where the industry is going.

Dowd said his big holding in the refinery space is Valero Energy(VLO Quote), because it is still "very cheap." National Oilwell Varco(NOV Quote), the Houston builder of oil rigs, also takes a prominent place in the fund's portfolio.

Blackrock Global Resources Fund

Dan Rice, the portfolio manager for the (SSGRX Quote)Blackrock Global Resources Fund (SSGRX), says his team does more macro analysis than company analysis when building its portfolio. Blackrock looks at how solar power, energy and gas interact worldwide. It's a broad approach that looks out about three years, rather than just three months. Over the course of the year, the fund may see turnover of just 25%.

For 2006, the fund returned 5%, and for the year to date through May, the fund is up 18%. The fund has an expense ratio of 0.75% and Morningstar gives it three stars.

"If you look back over the last 10 years, when China became a net importer of crude oil, that changed the landscape for crude worldwide," says Rice. "And the same with coal. China is the biggest producer of coal. But they just became a net importer. That will affect everything, including oil."

He says this is a good time to buy commodities overall. Rice explained the commodity bull market has been going on since 1992. Over that time, nothing inherent in the market has disrupted it, only three exogenous events. These was the Asian crisis in 1997, which took out demand; 9/11, which cut the demand for jet fuel; and the freakishly warm weather last year. During these disruptions, the industry underperformed and inventories were built up. But over a 12- to 15-month period, Rice says the industry would self-correct and resume what it's been doing for the past 15 years.