Some energized investments

NEW YORK – Predictions that already-lofty oil prices have nowhere to go but up have many investors eying the lucrative energy sector, but the choppy nature of crude’s most recent run underscores the volatility of natural resources.

If you own a diversified stock fund, you’re probably already getting a piece of the action – energy companies make up 7.3 percent of the Standard & Poor’s 500, and have been the best performing sector, up 28 percent this year compared to about 2 percent for the market overall. If you’d like to raise the energy component in your portfolio, there’s a whole universe of natural resources mutual funds and energy-focused exchange traded funds to choose from.

Some analysts argue that because of the volatile prices of the underlying commodities, any specialized investment in natural resources belongs in the actively managed portion of your portfolio, because a dedicated manager will hopefully be able to react to market changes.

“It’s very difficult to picture in this category, because they can be very volatile, but there are some funds that tend to be less volatile,” said Andrew Clark, a fund analyst with Lipper Inc. “For someone who is sticking their toe in the water for the first time, this is something to look for.”

Using Lipper’s database to sort through actively managed funds, Clark noted several names that stand out for their consistently strong returns over the past three-, five- and in some cases 10-year periods. Among them, ICON Energy, a no-load fund with about 75 percent of its assets invested in the energy sector; Ivy Global Natural Resources, which splits the bulk of its investment between industrial materials and energy; Jennison Natural Resources, about 70 percent invested in energy companies; and State Street Research Global Resources, which has performed exceptionally under Daniel Rice, the fund’s manager since it opened in 1990.

If the idea of investing in energy companies instead of the commodities themselves seems off the mark to you, there are funds that offer direct exposure. PIMCO Commodity RealReturn Strategy uses derivatives that mimic the Dow Jones-AIG Commodity Index, and invests the remainder of the portfolio in bonds, such as Treasury Inflation Protected Securities. Its main competitor is the Oppenheimer Real Asset fund, which tracks the Goldman Sachs Commodities Index.

The most important difference between these two is how their underlying indexes are weighted; the Dow caps energy exposure at 33 percent, while the GSCI’s energy weighting is changeable – currently more than 70 percent. Both funds have performed extremely well this year, but the Oppenheimer carries substantially more risk.

For frugal investors, the most off-putting aspect of such specialty funds may be the expenses. Most of these natural resource funds carry front loads of 5.5 percent or more, and they tend to charge hefty expense ratios, often 1.5 percent or higher. Pimco is an exception, charging a relatively competitive 1.24 percent.

An appealingly simple solution for small investors might be the Energy SPDR, the ETF that tracks the 27 energy stocks in the S&P 500. It offers exposure to the biggest domestic players, such as Exxon Mobil Corp., ChevronTexaco Corp. and ConocoPhillips, at the rock-bottom expense ratio of 0.28 percent. If this piques your interest, you’re not alone; over the last year, its assets have more than doubled, from about $630 million to just under $1.5 billion, said Dan Dolan, director of wealth management strategies for Sector SPDRs.