Energy Funds: What's Hot, What's Not

The national average price for unleaded gasoline hit $3.164 per gallon on Friday, according to AAA.

The milestone of $4 per gallon gasoline seems to be just around the next corner as higher and higher-priced oil flows through the refining process and is subsequently sold to gas stations.

As I pumped $52 of gasoline into my SUV this morning I wondered if mentioning the cringe-worthy cost in my article would make it a tax deductible, unreimbursed employee expense.

Of course it doesn't.

For the five trading days ending Thursday, Feb. 28, the average energy fund we track joyously climbed 5.20% excluding inverse funds. Over that same period the price of oil front month oil futures contract on the Nymex leapt 4.44% while West Texas Intermediate crude oil gushed 4.12% higher.

Thursday's confirmation of 0.6% annualized 4th quarter GDP growth was not weak enough to imply less future demand for energy. On the other hand, it did bolster the odds of another fed funds rate cut March 18.

The weak economy and lower expected interest rates sent the U.S. dollar to a record low of $1.5229 vs. the euro and a 33-month closing low of 105.35 Japanese yen per U.S. dollar spiking the price of dollar-denominated oil.

The best-performing fund this week is the Kayne Anderson MLP Investment Co. (KYN Quote). This closed-end fund rose 11.59% on positively received earnings reports from holdings Atlas Energy Resources(ATN Quote) up 10.79% and Copano Energy(CPNO Quote) up 10.15%.

In second place, the Ultra Oil & Gas ProShares (DIG Quote), an ETF 200% leveraged to the stocks in the Dow Jones U.S. Oil & Gas Index, jumped 11.18%. The largest holdings are Exxon Mobil(XOM Quote), Chevron(CVX Quote), ConocoPhillips (COP Quote), and Schlumberger (SLB Quote). Index member, EOG Resources (EOG Quote), popped 27.71% this week to a record high announcing that the company's Texas and Colorado discoveries should lead to a doubling of oil output in the next two years.

The most interesting opportunity on the best-performing list may be the Claymore/SWM Canadian Energy Income Index ETF (ENY Quote) that tracks the Sustainable Canadian Energy Income Index. This is a 100% pure play on Canadian oil & gas companies.

Over the past few years, Canadian companies have been investing large sums of money to develop "oil-sand" properties. The simple truth is that it is expensive to separate the oil from sand. Only as the price of crude oil rises past a threshold do these companies have a chance to become profitable.

For the five trading days under review, index member Synenco Energy (SYEYF Quote) stockholders hit paydirt, rising 25% on merger speculation coinciding with the CEO's resignation. Another holding, Connacher Oil and Gas Ltd (CLLZF Quote) rose 20.27% on higher estimated reserves and an oil sands rights pooling agreement with Alberta Oilsands.

Best Performing Energy Funds Ranked by returns for the week ending February 28

Fund	Ticker	Rating	Fund Type	1 Week Total Return
Kayne Anderson MLP Investment Co	(KYN Quote)	C+	Closed-End	11.59%
Ultra Oil & Gas ProShares	(DIG Quote)	C+	ETF	11.18%
Claymore/SWM Canadian Energy Income Index ETF	(ENY Quote)	U	ETF	9.25%
MACROshares Oil Up Tradeable Trust	(UCR Quote)	B	ETF	9.00%
Profunds Oil Equiptment Dist & Svcs UltraSector ProFund	(OEPIX Quote)	U	Open-End	8.93%
ProFunds Oil & Gas UltraSector ProFund	(ENPIX Quote)	C+	Open-End	8.43%
iShares Dow Jones US Oil & Gas Expl & Prod Index Fund	(IEO Quote)	A-	ETF	7.92%
First Trust ISE-Revere Natural Gas Index Fund	(FCG Quote)	U	ETF	7.85%
BlackRock Natural Resources Trust	(MAGRX Quote)	B+	Open-End	7.46%
BlackRock All-Cap Global Resources Fund	(BACAX Quote)	U	Open-End	7.08%

Source: Bloomberg. For an explanation of our ratings, click here.

The three funds taking the worst beating this week are all inverse funds taking the opposite side from their best-performing counterparts. The MacroShares Oil Down Tradeable Trust (DCR Quote), tracking an inverted measure of oil prices, plummeted 17.76% as the price of oil rose to a new high.

The UltraShort Oil & Gas ProShares (DUG Quote) lost 10.88% of its value employing 200% negative leverage against the member companies in the Dow Jones U.S. Oil & Gas Index listed above. The same is true for the non-leveraged, ProFunds Short Oil & Gas ProFund (SNPIX Quote)(SNPIX) sinking 5.34%.

Worst-Performing Energy Funds Ranked by returns for the week ending February 28

Fund	Ticker	Rating	Fund Type	1 Week Total Return
MACROshares Oil Down Tradeable Trust	(DCR Quote)	E-	ETF	-17.76%
UltraShort Oil & Gas ProShares	(DUG Quote)	E-	ETF	-10.88%
ProFunds Short Oil & Gas ProFund	(SNPIX Quote)	U	Open-End	-5.34%
Tortoise Energy Capital Corp	(TYY Quote)	C	Closed-End	-1.99%
MLP & Strategic Equity Fund Inc	(MTP Quote)	U	Closed-End	-1.10%
Kayne Anderson Energy Development Co	(KED Quote)	U	Closed-End	-0.57%
Fidelity Select Paper & Forest Products Portfolio	(FSPFX Quote)	D-	Open-End	-0.49%
Market Vectors Global Alternative Energy ETF	(GEX Quote)	U	ETF	0.17%
Tortoise North American Energy Corp	(TYN Quote)	C-	Closed-End	0.77%
BearLinx Alerian MLP Select Index ETN	(BSR Quote)	U	ETF	1.44%

Source: Bloomberg. For an explanation of our ratings, click here.

Ecuador's mining & oil minister, Galo Chiriboga, promised that "Oil exports won't be affected." A private pipeline may be utilized, in place of the one damaged in the landslide, to bring Petroecuador's oil to the export terminal.

In technical trading, after being broken, former key levels of resistance can become support. $100 per barrel oil may be such a level. Renewed energy supplies and lackluster U.S. economic growth may not be enough to pierce that support in the near term. I remain bullish on oil as OPEC is expected to ignore America's pleas for an increase in production at its upcoming meeting Wednesday, March 5.