Newspaper article The Christian Science Monitor

Take Care in Tanking Up on Energy Funds

Newspaper article The Christian Science Monitor

Take Care in Tanking Up on Energy Funds

Article excerpt

What a difference a weekend can make. At the end of June, before revelers began celebrating the July 4 holiday period, mutual-fund watcher Scott Cooley would have expected continued strong market performance from international oil firms such as Texaco, Exxon- Mobil, or BP Amoco.

But by the end of last week, after the holiday, the energy market - and oil stocks - suddenly looked quite different, thanks to a decision by just one country: Saudi Arabia.

Last Monday, officials of the No. 1 oil-producing nation hinted that they might boost crude-oil production to bring down oil prices from the $30 a barrel range to the $25 range. Whether the Saudis' actually follow through on their promise or not, the impact was immediate: Crude-oil futures (which reflect contracts on future deliveries) dropped nearly $2.

The change in the price outlook underscores the complexity of the entire natural-resources/energy segment of the stock market, says Mr. Cooley, an analyst for Morningstar Inc., in Chicago.

To take advantage of market gains in natural-resources stocks, you have to be in the exact right place at the exact right time, says Cooley. That means if oil prices suddenly rise, you have to have a presence in the commodity. Conversely, if oil prices suddenly sag, you have to make certain that you are not overexposed.

"Average investors should have a small stake of around 5 percent of their overall portfolio in natural-resource stocks," says Cooley. "But the best way to do that," he says, "is to own a broad-based natural resources/energy fund - or have very tiny positions in two or three funds that capture a theme, such as oil exploration, oil- service firms, and refining companies."

Funds Cooley admires include T. Rowe Price's New Era Fund, a no- load fund, and Oppenheimer Real Asset Fund, which carries a load of 5. …

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