Is it late to get into energy sector funds

[Spanky]

Energy sector is still booming. I wonder if it is too late given the recent run-ups. I know it is always a bad idea to go after a sector that is hot.

I wonder if the health-care sector will pick up soon and the REIT sector will ever recover?

 

[JOhn Galt]

I went after a "hot sector" when I was in high school
(Bobbie Jo Moffitt). She broke my heart.

JG

 

[azanon]

I dont think so Spanky. Energy got unfairly and excessively brutalized around the beginning of 2000 approaching the magnitude that tech did, but energy is suppoed to be a relatively stable sector. That was the reason i jumped in a year ago. Despite its out of kelter rise over the past year or 2 i think it has quite a bit of rise left. Time will tell.

 

[Spanky]

Azanon,

I assume that you are saying that it may not be too late to get into the enerfy sector.

However, some analysts caution chasing 2004's stellar industries like energy and real estate and predict upside for technology and health care funds in 2005.

We will see if they are right.

Spanky :-/

 

[Marshac]

How much are some slightly out-of-the-money call options on the funds you're looking at?

 

[Spanky]

How much are some slightly out-of-the-money call options on the funds you're looking at?

No, I do not have any money set aside for call options. I guess the answer is $0.

 

[cute fuzzy bunny]

Sure energy is pretty well run up.

I guess the answer to your question is "which energy" and depending on that "how much of it do you think is still in the ground to be pumped or dug out".

If you're buying a fund or stocks that involve a lot of companies still digging and pumping, I suspect stocks will run short in 20 years or so, and profits will run strong between now and when the pumps/backhoes run dry. If its intermediary companies or distributors you're looking at, that may be a different matter.

For a specific example, I looked at vanguard energy in 1/04 and decided it was too expensive. Bought some anyways when it had a momentary backslip sometime in the 3rd quarter (by memory). Its currently as of 2/1/05 my best holding for % gain from 1/04 to 2/9/05.

I'll keep it. I think it has legs over then next 20 years. Better than the S&P500 or the TSM.

 

[Spanky]

TH,

Thanks for the advice. I am looking at Vanguard Energy Sector fund. Sounds like it is worthwhile to own.

Spanky

 

[Cal]

TH,

Thanks for the advice. I am looking at Vanguard Energy Sector fund. Sounds like it is worthwhile to own.

Spanky

Too late if you don't already own it. Vanguard has closed the energy fund.

 

[Spanky]

bummer.

Spanky

 

[charlie]

Spankey,

You can buy Vanguards Energy ETF if you like.

Cheers,

Charlie

 

[73ss454]

Can some one tell me the main diff. between owning ETF's and funds.
I opened my account with VanGuard today. I'm getting ready to pull the trigger at the end of this year. I would need to generate income and need some help with the choice of funds or ETF's and the correct diversity.

Thanks
JOE

 

[Spanky]

Joe,

The main difference is that ETF is traded like a stock. You can buy or sell ETF at the market rate as opposed to open-ended mutual funds, the price of which is determined when the market is closed. Each transaction of ETF will however incur cost compared to none for no-load open-ended funds.

Spanky

 

[Spanky]

Spankey,

You can buy Vanguards Energy ETF if you like.

Cheers,

Charlie

Thanks. I think Fidelity Select Energy (FSENX) is still open for new investors.

Spanky

 

[cute fuzzy bunny]

ETF's help you buy really small amounts of a fund in increments, as you can buy one "share" at a time instead of a $3000 minimum. There is no minimum holding time for etf's vs funds. Sometimes the expenses are lower on ETF's than an equal fund. You can get eaten alive by trading costs on ETF's if you buy them in small increments.

Also, eyeball the "etf vs fund" when buying...some of vanguards ETF's are not at all similar to the like sounding funds. They're health care ETF is based on an institutional health care index fund they operate, NOT the vaunted actively managed health care fund.

Some pundits also think that energy, specifically oil and gas pumpers, have the best potential future returns and are a great source of diversification. Besides being a potentially hot sector, many of these companies are non-US, which gives you a built-in foreign component and some currency and inflation protection. When the dollar and/or inflation runs funny in a bad way, energy costs usually rise (or sometimes are the cause of the problem). Similar to how commodities can help flatten out risk in a portfolio, except you're buying common stocks of companies that work the commodity...which is similar to how vanguards precious metals fund works.

I just re-read that last paragraph, and if you can follow it you've had more than 2 cups of coffee this morning...

 

[ak4195]

In my opinion,its not a matter of "to late",but risk.Energy was a buy $20-30/bbl,now @$47 and given that we are on the cusp of the"in between" season.I.E,in between winter usage and summer SUV season.That being said,experience has shown me to make my buys in the fall,since fall time sees the same"in between season".It seems to me by looking at the $XOI index,that the market is pricing in fairly sustained energy prices.Not neccessarily higher,just say >$35,i think we do see higher prices if the dollar continues to fall.If you feel that youve just GOT to have it,then please consider a % of the $ you want to allocate NOW,and come back in the fall.Say a maximum of 25% now.Energy is very cyclical,both seasonal and year over year,this same cycle plays out almost every year.This year could be one of those wierd years,but the odds of history are against it.Energy sector is probably the original ".com",boom to bust,boom to bust,etc.,
Good luck,hope this doesnt muddy up the waters for you,just hate to see people get crushed.--ak

 

[RAE]

I bought Vanguard Energy in Jan. 04, and have obviously been very pleased with its performance. Just bought more in Jan. 05, and that has already gone up nicely also. Some energy analysit on NPR said the other day that we could be looking at oil in the $100+/barrel range within the next few years. The Arab countries have not actually been able to increase production for the last 15-20 years or so......and demand (with China, India, etc. growing fast) is obviously increasing rapidly. The other thing, as someone said, is that Energy funds tend to move in the opposite direction of the rest of the US equity market (at times, anyway). So, it provides some nice portfolio diversification. I plan to add to my VGENX investment over the next few years, without hesitation.

RAE

 

[cute fuzzy bunny]

Its kinda fun too when my wife laments about the 5c increase in gas prices and I tell her "yeah, but our Energy holdings went up $3000 in the last week" and she says "ok, well that should cover it".

 

[AltaRed]

No way oil can be sustained at $100/B. Conservation would kick in big time and old oil fields would be combed over extensively to squeeze out another million barrels per day or so. Strictly laws of supply and demand with some oscillations in 3-4 year cycles.

 

[ak4195]

$100/bbl,sheesh,we got to get past $55 n change first!

 

[Spanky]

Since Vanguard's energy sector fund is closed to new investors, I am considering ETFs. Below are my findings:

iShares Goldman Sachs Natural Resourc (IGE)
Energy Select Sector SPDR (XLE)
Dow Jones U.S. Energy Sector Index Fund (IYE)
S&P Global Energy Sector Index Fund (IXC)

It seems that their holdings are very similar with over 60% in oil companies. IGE seems to be a little bit more diversified than the others.