This week, funds that trade energy stocks and commodities stalled. Both crude oil and natural gas pulled back from record-high prices, sucker-punching some of the highflying oil and gas company stocks.
Excluding the inverse funds that short the sector, the average energy and environmentally friendly fund we track plummeted by 4.40% for the five trading days ending Thursday, July 17. Over that period, oil was down 8.76%, while natural gas declined 3.55%.
Please note that starting this week, the environmentally friendly fund sector will be included with the energy and natural resource funds. As many of these funds focus on alternative energy sources, the energy sector is a better fit than the religious and socially responsible group.
Back to energy prices: With anemic growth on the broad economic front, cash-strapped consumers are driving less and conserving more, bolstering inventory levels.
In addition, action in Washington to open up drilling in the outer continental shelf, as well as the prospect of tension-diffusing talks between the U.S. and Iran, helped to ease pressure on the price of oil.
So much for the underlying causes. Now, here are the specifics about the funds in the sector.
Four of the five best-performing funds this week were inverse energy funds, which are designed to go up in value as the underlying shares fall. The first two funds, the E-rated
UltraShort Oil & Gas ProShares
Rydex Inverse 2X S&P Select Sector Energy ETF
, used 200% negative leverage to soar 15.97% and 14.13%, respectively.
S&P Energy Index members falling sharply include
Cabot Oil & Gas
, off 15.98%;
, off 15.12%; and
, off 13.91% for the period under review.
The best-performing fund of the group that didn't short the sector is the D+ rated
PowerShares WilderHill Clean Energy Portfolio
, up 6.11%. Just over one-third of the fund invested in alternative energy companies.
The holdings contributing to the gain include 24.28% from
Fuel Systems Solutions
, the fund's largest holding, 23.94% from
, 19.39% from
, and 15.31% from
The worst-performing energy sector fund this week is the
iPath Dow Jones-AIG Natural Gas Total Return Sub-Index ETN
cratering 14.74%. The fund is designed to track the Dow Jones-AIG Energy Sub-Index.
Losing almost as much, at -14.35%, was the
Ultra Oil & Gas ProShares
This fund employs 200% leverage to top holdings
, 20.4% of assets;
, 8.1% of assets; and
, 5.1% of assets.
For an explanation of our ratings,
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, 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.