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Top-Performing Energy Stocks Picked by Funds

Stocks in this article: NOV MRO DVN XOM CVX PTR OXY

NEW YORK ( TheStreet) -- Mutual funds that buy shares of energy companies returned 10% in the first quarter, almost double that of the second-best sector, and that performance shows no sign of slowing.

Political upheaval in the Middle East and worldwide concern that nuclear energy may not be safe are fueling a spike in the shares of natural gas, oil and coal companies, which account for most of mutual funds' energy holdings. Growing global economies, meanwhile, are pushing up demand for energy after two limp years.

Professional investors are loading up on National Oilwell Varco (NOV), which has risen 20% this year, Marathon Oil (MRO), up 38%, and Devon Energy (DVN), up 19%. By comparison, the S&P 500 Index has climbed 4.6%, and the average gain for the 16,686 mutual funds tracked by Morningstar is 3%.

The top 10 performing U.S. mutual fund sectors and their returns this year through March 24, according to Morningstar, are: energy, 10.4%; small growth, 5.8%; natural resources, 5.7%; mid-cap blend, 5.6%; mid-cap growth, 5.3%; industrials, 5.2%; mid-cap value, 5%; health, 4.8%; small blend, 4.8%; and large value, 4.8%. "Blend" refers to funds that hold both growth and value stocks.

>>10 Best-Performing S&P 500 Stocks of 2011

Indicative of energy funds' dominance, at least 30 of the 40 best-performing funds are oozing oil-industry stocks.

Two highly leveraged ProFunds mutual funds, the UltraSector Oil & Gas Investor (ENPIX) and Oil Equipment Services & Distribution Investor (OEPIX), lead the fund-returns parade, each up about 21% this year.

"Energy stocks are basically being driven by the price of oil," said Peter Tuz, president of Chase Investment Counsel and co-manager of the Chase Growth Fund (CHASX) and Chase Mid-Cap Growth Fund (CHAMX), in an interview. "It was at $80 (a barrel) at year-end and it's over $100 today, driven by the turmoil in the Middle East since mid-January."

"This could continue for years," Tuz said of the energy sector's price volatility, "but even if it subsides, oil prices may continue to rise due to growing demand from developing countries, particularly China, at a time when existing supplies are low."

>>10 Worst-Performing S&P 500 Stocks of 2011

Oil's record price is $147 a barrel reached in July 2008, though that was driven, in part, by hedge fund investors speculating on commodities.

Standard & Poor's analysts said in a March 23 research note that refiners will reap increasing profits because they can pass higher prices they pay for crude on to consumers. When oil prices last peaked, refiners' operating-profit margins approached $17 per barrel, while it's estimated their margin was $12 per barrel early this year, the analysts said.

Todd Rosenbluth, a mutual fund analyst for Standard & Poor's, said in an interview Wednesday that his firm expects energy stocks will continue to outperform the S&P 500 Index, particularly large integrated oil and natural gas companies that control every part of the business from exploration and production, and on to distribution. They include Exxon Mobil (XOM), Chevron (CVX) and PetroChina (PTR). S&P has "strong buy" ratings on all three companies.

Here are six mutual funds that produced top performances in the first quarter and their best-performing stocks:

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