Hire a manager and fuel your portfolio with energy funds

There are a lot of moving parts to the energy industry. Exploration companies have one set of issues, and refiners have another. Ditto for services companies, coal producers and pipeline operators. Rather than sort out the details, consider relying on the expertise of a mutual fund manager.

Two of the most experienced energy-fund managers are Charles Ober and Michael Hoover. Ober has run T. Rowe Price New Era (symbol PRNEX, 800-638-5660) for seven and a half years, and Hoover has reigned over Excelsior Energy & Natural Resources (UMESX, 800-446-1012) for nearly nine. Both funds invest primarily in energy stocks but also hold shares of precious metals, timber and other commodity companies. That diversification should protect you from a sudden plunge in oil prices.

The Price fund and the Excelsior fund both returned an annualized 10 percent over the five-year period to Sept. 1. That's about one percentage point per year less than the average of all energy funds. But both funds have been less volatile than the average energy fund, and they carry significantly lower annual expenses — 0.72 percent for Price and 1.01 percent for Excelsior, compared to a category average of 1.71 percent.

A purer energy play is Vanguard Energy (VGENX, 800-635-1511). Karl Bandtel, who has been in charge of the fund for less than two years, favors big, lower-risk oil companies, such as ExxonMobil. The fund returned 34 percent last year and 16.4 percent in the first eight months of 2004, topping most of its rivals. Expenses, at 0.38 percent, are minuscule. The minimum investment, however, is a stiff $25,000.

Another way to own energy stocks is through exchange-traded funds, or ETFs, which are index funds that trade like stocks. Expenses are low, but you'll pay commissions when you buy and sell shares.

Behemoths ExxonMobil and ChevronTexaco dominate the ETFs that track U.S.-based energy indexes, such as iShares Dow Jones U.S. Energy (IYE) and Energy Select Sector SPDR (XLE). The two stocks account for about 40 percent of the holdings in both ETFs. The iShares S&P Global Energy Sector Index (IXC) is top-heavy with ExxonMobil and British Petroleum but adds exposure to promising energy markets in China, Brazil and elsewhere. In the first eight months of 2004, the three funds gained 16.5 percent, 17 percent and 11 percent, respectively.