|The Search for Gushing Returns |
|Name/Ticker||YTD (%)||3 Year (%)||5 Year (%)||Top Holding||Expense Ratio (%)|
|Fidelity Select Energy (FSENX)||3.95||1.89||10.44||British Petroleum (BP)||1.21|
|ICON Energy (ICENX)||5.49||9.43||25.27||Ultra Petroleum (UPL)||1.35|
|Ivy Global Natural Resources (IGNVX)||3.87||20.91||-||Western Oil Sands(WTO)*||1.82|
|ProFunds Ultra Energy (ENPIX)||4.15||-3.9||-||ExxonMobil (XOM)||1.95|
|Rydex Energy (RYEIX)||3.48||1.73||6.04||ExxonMobil (XOM)||1.39|
|Rydex Energy Services (RYVIX)||7.29||-9.93||4.61||Schlumberger (SLB)||1.39|
|State Street Global Resources (SGLSX)||5.1||21.13||30.95||Western Gas Resources (WGR)||1.30|
|UMB Scout Energy (UMBEX)||4.55||5.46||6.15||ExxonMobil (XOM)||0.85|
|Vanguard Energy (VGENX)||4.91||11.81||16.49||British Petroleum (BP)||0.40|
|Source: Morningstar (YTD as of 3/23) * Toronto Exchange|
Higher prices at the pump got you down? Stressed out by steeper home heating oil and natural gas bills? Well, don't call Ivy Funds Portfolio Manager Frederick Sturm to cheer you up. He'll just tell you that oil is "reasonably priced" even at today's prices, which recently touched a 13-year high of $38 a barrel. Sturm manages the $270 million Ivy Global Natural Resources Fund (IGNVX), and by his math, the 40-year average price for a barrel of oil is $34.75 after adjusting for inflation, right in line with current market levels. But Sturm says Americans don't need to look further than their driveways to realize that oil is properly priced. "The simple gut check is to watch demand for cars. If oil was truly expensive, then SUVs would be traded in for today's Ford Pintos," says Sturm. Sturm makes a strong point, but asking soccer moms to save money by swapping their SUVs for more fuel-efficient, smaller vehicles might stir up a revolution in some U.S. suburbs. So, instead of trying to cut their energy bills, Americans might look to the other side of the personal accounting ledger to benefit from the rising price of energy: investing in energy stock funds.
Another energy sector fund, the ProFunds Ultra Energy Fund (ENPIX) has a similar design but a different benchmark, the Dow Jones U.S. Energy Sector index. This fund uses leverage to seek results that correspond to 150% of the daily performance of its benchmark. The fund's use of options to magnify its performance might also account for its higher-than-average expense ratio of 1.95%. Bachman suggests that investors looking to benefit from higher energy prices veer toward funds dominated by integrated oil producers as opposed to other groups such as energy services or drilling companies. "The integrated oil and gas producers have a much higher correlation between their stock price and the price of oil than the equipment services companies," says Bachman. "They are providing a finished product and can increase margins more easily." In Rydex's case, that would mean opting for the Rydex Energy Fund, which holds names such as ExxonMobil ( XOM) and ChevronTexaco ( CVX), instead of the firm's Energy Services fund, which contains names such as Schlumberger ( SLB) and Halliburton ( HAL).
Waller also likes the marketers and refiners subsector, in which he has a 16% weighting. Two of his favorite names there are Ashland ( ASH), which he sees as 10% undervalued, and Teekay Shipping ( TK), which he says is 33% undervalued. Whether you agree with Waller's method for valuing energy stocks, there is undeniable chatter in the market about energy stocks being "overvalued." Nevertheless, Daniel Rice, portfolio manager for the $503 billion dollar State Street Global Resources Fund (SGLSX), does not see a valuation problem. "I think if they
market analysts are only discounting a $22 barrel crude price -- and we believe crude prices will be significantly higher than that -- then energy stocks are undervalued on a long-term basis," said Rice in an extended interview with TheStreet.com .(See related story.) Rice is careful to warn investors that these are long-term projections and not ones simply based on spiraling prices at the local gas station. Rice says that although energy stocks typically do better when high oil prices start making headlines, there is not a direct correlation between today's commodity and equity prices, since "the stock market is a discounting animal and tries to guess where prices are going to be six months down the road." Brian Cashman, portfolio manager at the UMB Scout Energy Fund ( UMBEX), echoes Rice, saying "high gas prices at the pump translate into higher prices for oil stocks for all the wrong reasons. Any pricing benefits are not realized until much later."