Want to Make Money By Investing in the Energy Sector…..

......don’t give your money to a hedge fund with expertise in energy. It seems you would have been far better off simply putting the money in an index of energy sector stocks through an exchange traded fund(up 8.5% through May), in an exchange traded note linked to energy like JJE (up 37.9% in the same period) or probably the best choice in a diversified portfolio; allocating a small portion of the portfolio to a diversified commodity index instrument like the ipath DJP which is capped at 34% energy holdings (it rose 16.4% jan – may 2008). All seem to have crushed the hedge funds marketed based on their expertise in this area. The WSJ reported the following.


Energy Hedge Funds Missing Oil Boom
Returns Lag Even as Futures Prices Soar,
Undermining Fears of Speculators' Clout
By GREGORY ZUCKERMAN and ERIC BAUM
June 9, 2008;

If speculators are responsible for driving up energy prices, some of them haven't been doing a good job of profiting from the surge.
Hedge funds that focus on energy failed to cash in on huge moves in oil, natural gas, coal and other parts of the energy patch this year. Some were too cautious, bet against crude oil to protect other holdings or bought stocks of oil refiners and producers, many of which have struggled. Exxon Mobil Corp., for example, is down more than 7% this year.
The 97 hedge funds that focus on energy investments were up an average of almost 3% through May, after climbing 16% last year, according to estimates of HedgeFund.net, which tracks fund performance. By contrast, prices of oil-futures contracts are up more than 40% in 2008. And the Standard & Poor's Global Energy Sector Index Fund, an exchange-traded fund that tracks shares of energy companies, was up 8.5% through May. Only about a third of the 97 funds are on track to beat that ETF this year. It is unclear how the funds have fared this month, with oil prices up 9% in June.
Some of the hedge funds having difficulties may have been among those that bet against the price of long-term oil-futures contracts, while at the same time buying near-term oil futures, says Mary Ann Bartels, an analyst at Merrill Lynch. That strategy backfired in recent weeks when long-term energy-futures prices did better than near-term prices.
The strength in crude this year has caught some veteran traders by surprise, in part because oil inventories have been relatively full. "People seemed to get too scared when it neared $100 a barrel that a pullback was possible and have been gun shy getting back in ever since," said one hedge-fund manager.