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Energy Funds Lose Ground Along With Oil

This week, we are taking a look at the best- and worst-performing energy mutual funds. Excluding the funds betting against the sector, the average energy fund we track lost 1.84% for the five trading days ending Thursday, May 1.

This week, the Federal Reserve cut its target rate to 2%. It bolstered the move in the accompanying policy statement, which says that the cutting actions to date have been "substantial" and no more reductions should be necessary.

But behind the scenes, the Fed is continuing to inject banking liquidity by expanding its cash-loan auctions and widening the range of asset-backed securities it will accept as Treasury loan collateral.

Investors clinging to the idea that the U.S. government might stop undermining the U.S. dollar sent the greenback to a five-week high against the major world currencies. Crude oil corrected from its recent high of around $120 a barrel, souring investment in energy stocks and funds.

The worst-performing energy fund this week is the ProFunds Oil Equipment Distribution & Services UltraSector ProFund (OEPIX). The fund lost 5.44% for the five trading days ending Thursday, May 1.

The four largest holdings include Schlumberger (SLB - Get Report), down 3.52%; Transocean (RIG), down 4.02%; Halliburton (HAL - Get Report), down 4.18%; and National Oilwell Varco (NOV), down 9.82%.

Strong earnings releases from Grey Wolf (GW) and Oceaneering International (OII) helped limit the declines in these shares to 7.59% and 7.42%, respectively.

The United States Heating Oil Fund LP (UHN), an ETF tracking the movements of New York heating oil that began trading less than a month ago, slipped 4.93%.

In third place on the worst-performer list is the Ultra Oil & Gas Proshares (DIG). The stocks in the Dow Jones U.S. Oil & Gas Index sank 1.96%, and the 200% leverage translated this into a return of negative 4.58%. The holding falling the furthest, crashing 15.24%, was Cheniere Energy (LNG), as it was revealed that corporate insiders sold $17.4 million of Cheniere stock during the week ending April 25.

Another new ETF, the United States Gasoline Fund LP (UGA), which has traded since the end of February, ranks fourth, losing 4.44%. In theory, as this ETF tracks the price of unleaded gasoline futures contracts, investors could buy it to hedge their yearly driving exposure at the pump.

Worst-Performing Energy Funds for the Week Ending Thursday May 1
Fund Ticker Rating Fund Type 1 Week Total Return
ProFunds Oil Equip Dist & Svcs UltraSector ProFund OEPIX U Open-End -5.44%
United States Heating Oil Fund LP UHN U ETF -4.93%
Ultra Oil & Gas ProShares DIG B ETF -4.58%
United States Gasoline Fund LP UGA U ETF -4.44%
Market Vectors Global Alternative Energy ETF GEX U ETF -4.42%
PowerShares Dynamic Oil & Gas Services Portfolio PXJ C+ ETF -4.22%
Claymore/MAC Global Solar Energy Index ETF TAN U ETF -4.18%
Market Vectors-Coal ETF KOL U ETF -3.84%
Kayne Anderson Energy Total Return Fund KYE D Closed-End -3.71%
iPath Dow Jones AIG Energy Total Return Sub-Index ETN JJE U ETF -3.68%
Source: Bloomberg & Ratings

On the up side for the energy funds this week are the funds betting on the downside. The MACROshares Oil Down Tradeable Trust (DCR) tracks the inverse performance of the price of crude oil. Collapsing 75.59% in the last year, this fund proves that dead cats really do bounce, gaining 7.90% for the period.

Half of the other winning positions on our best-performer list include funds holding master limited partnerships. These investments generate a stream of income from production, exploration, and transportation of energy through pipelines and marine shipping. Their income has more to do with longer-term bullish trends in fuel prices than short-term, news-cycle volatility.

The closed-end funds Tortoise Energy Infrastructure Corporation (TYG - Get Report) and Energy Income and Growth Fund (FEN) led this group, with each returning just over 4% this week.

Three of the top-ranked partnerships held by FEN include Holly Energy Partners LP (HEP), up 9.70%; MarkWest Energy Partners LP (MWE), up 8.38%; and Alliance Resources Partners LP (ARLP), up 6.61%.

Best-Performing Energy Funds for the Week Ending Thursday May 1
Fund Ticker Rating Fund Type 1 Week Total Return
MACROshares Oil Down Tradeable Trust DCR E- ETF 7.90%
UltraShort Oil & Gas ProShares DUG E- ETF 4.16%
Tortoise Energy Infrastructure Corp TYG C- Closed-End 4.07%
Energy Income and Growth Fund FEN C Closed-End 4.02%
Fiduciary/Claymore MLP Opportunity Fund FMO C Closed-End 3.56%
MLP & Strategic Equity Fund Inc MTP U Closed-End 2.37%
WisdomTree International Energy Sector Funds DKA C+ ETF 2.10%
ProFunds Short Oil & Gas ProFund SNPIX U Open-End 1.95%
BearLinx Alerian MLP Select Index ETN BSR U ETF 1.26%
PowerShares WilderHill Progressive Energy Portfolio PUW D+ ETF 1.04%
Source: Bloomberg & Ratings

If you believe that the Federal Reserve is done cutting interest rates for the next year, that the economy is going to get back to moderate growth, and that the U.S. dollar is primed for a huge rally, then this may be the grand bearish turning point you are looking for in the energy market and other commodity markets.

Economists and TV pundits may proclaim that today's report of a 5% jobless rate, down from 5.1% in March and losing only 20,000 workers from the payroll instead of 81,000 over the same periods, means the recession we are in is almost over before it has been officially declared begun.

In this optimistic scenario, the speculators that have pushed up energy prices would bail out and start buying companies that have returned to profitability in the first quarter.

To me, this looks more like an attractive, buy-on-the-dip entry point for energy investments.

For an explanation of our ratings, click here.

RealMoney Barometer Poll
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Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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DIG $56.58 0.00%
HAL $48.00 0.00%
SLB $91.61 0.00%
TYG $43.74 0.00%
UGA $39.43 0.00%


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