Mutual Fund Investing

Energy Funds Lose Ground Along With Oil

05/03/08 - 10:38 AM EDT

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 ProFundOEPIX. The fund lost 5.44% for the five trading days ending Thursday, May 1.

The four largest holdings include SchlumbergerSLB, down 3.52%; TransoceanRIG, down 4.02%; HalliburtonHAL, down 4.18%; and National Oilwell VarcoNOV, down 9.82%.

Strong earnings releases from Grey WolfGW and Oceaneering InternationalOII helped limit the declines in these shares to 7.59% and 7.42%, respectively.

The United States Heating Oil Fund LPUHN, 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 ProsharesDIG. 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 EnergyLNG, 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 LPUGA, 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 & TheStreet.com Ratings

On the up side for the energy funds this week are the funds betting on the downside. The MACROshares Oil Down Tradeable TrustDCR 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 CorporationTYG and Energy Income and Growth FundFEN led this group, with each returning just over 4% this week.

Three of the top-ranked partnerships held by FEN include Holly Energy Partners LPHEP, up 9.70%; MarkWest Energy Partners LPMWE, up 8.38%; and Alliance Resources Partners LPARLP, 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 & TheStreet.com 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.