High oil prices could be boost for your portfolio

SUNDAY, MAY 1, 2011

BOSTON — Think positive. The pain you’re feeling at the pump from $4-a-gallon gas may become a little easier to bear once you receive your next quarterly mutual fund statement.

Chances are your fund portfolio holds big oil names that have been reporting Texas-sized profits this week and boosting dividends paid to their investors. Exxon Mobil, for example, is the biggest component in the Standard & Poor’s 500, the most widely tracked benchmark among index funds anchoring many 401(k) plans and retirement accounts.

Exxon earned nearly $11 billion in the first quarter, its biggest profit in more than two years. Exxon and rival Chevron are increasing their quarterly dividends, boosting returns for investors. Combined, Exxon and Chevron make up about 4.6 percent of the S&P 500.

If your portfolio includes a specialized fund that focuses on energy stocks, you’ve got even more reason to consider the bright side of rising oil prices. Energy stock funds have returned an average 26 percent over the last 12 months, the third-best performance among Morningstar’s 21 domestic fund categories. That tops the S&P 500’s nearly 17 percent return.

What’s more, the top performer among all funds is an energy fund. Integrity Williston Basin/Mid North America Stock (ICPAX) has returned 63 percent, thanks to sizzling gains from the energy exploration and oilfield services companies it favors.

Such eye-popping numbers make these funds tempting. But be careful if you’re considering a specialized fund whose returns are closely tied to swings in energy prices.

Energy stocks account for nearly 15 percent of the holdings in funds tracking the S&P 500, so that’s a good threshold for assessing your portfolio’s energy exposure.

Yet 15 percent may be too high for some risk-averse investors. It’s not just energy stocks that leave an investor exposed to energy price swings. Price changes can also make or break the bottom lines of other companies, including airlines and petrochemical makers.


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